The US Debt Downgrade could be the Catalyst!

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by ThreeD710

Not sure how many of you have read about the US Debt downgrade, but this could be the catalyst for a major turning point for the World.

If you are thinking how does this affect the World or the World Investments, then below is a brief flow of thoughts –

  1. Debt downgrade because already highly indebted and running fiscal deficits.
  2. This forces US to reduce deficits and even try to run surpluses.
  3. This would also mean trying to restict the growth of debt and possibly even paying down the debt with time due to inflation (inflation makes debt cheaper and easier to pay down, but it also means INFLATION).
  4. Low growth or no growth in debt means no growth in economy (excluding growth in say exports).
  5. No growth in economy means possibly no growth in the World.
  6. The World is affected because if US is reducing debt, USD gets stronger, which means higher import cost for the World, which could loosely translate to higher fiscal deficits for the World too.
  7. So if the World also has to reign in it’s fiscal deficits, they would have to work on degrowth, if not, they would have to raise interest rates too to make the currency stronger against the USD, so fiscal deficit is managed.
  8. But raising rates means slow down in the economy.
  9. If you claim that certain countries (like India) have scope for massive growth, you need to think that for this growth to be realized, people need to have access to money or to job opportunities that provide them money.
  10. Job opportunities are created when there’s money, money is created when there’s job opportunity, and so is the cycle (more or less).
  11. So money needs to be introduced for growth, but if interest rates are higher then introducing money becomes tougher, and if interest rates are lower then read points 7, 8, and 9.
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The above are my superficial thoughts. This is not a Econ 101 list, so please read everything with a spoon of salt. The idea to make this post is to have a flow of ideas, thoughts, and debates.

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With the US Debt downgrade, I am having a lot if internal thoughts and debate, and in times like these, I feel the best way is to have an outlet for your thoughts and ideas, and to debate them. The more ideas and thoughts are struck down, the more the residual ideas and thoughts are pure.

Hope we have a good banter!

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