US debt situation is likely to worsen, exporters beware

Between 1940 and 2010, Congress increased the debt limit more than 70 times. It is highly unlikely that they will not need more money.

Peter was in debt trap, he borrows from Paul who already was struggling to manage his debt. In order to pay Paul, Peter has to ensure that he spends on needs and not wants. Peter also has to work harder to raise his income level to make his payments on time to Paul without asking for time extension. Paul, who also is in debt now has less money to spend and is facing similar issues.

Individually, you will still try and manage it because this impacts your family, your finances but when you are using up TAXPAYER's money, would you care? This is what government across the world does. The ministers get top paychecks, perks, security and great retirement perks. They do not have enough motivation that will derail their own personal finances to really act on SOS basis.

Look at US situation today.

US debt to revenue ratio of US is 310% - even worse then many smaller countries who are going through debt crisis. This means that US govt's revenue receipts are not enough to meet their debt obligations. Either you have to reduce govt spending or increase your receipts. Tax receipts cannot be predicted but you can certainly bring down government spending.

Now here is the problem. US needs a lot of money to put in expenses for Social Insurance Spending and to take care of Aging population. Whether it is pension, medicare etc, the people who have contributed to US economy to make it an economic superpower have to be taken care of as per commitment of government at that time.

Second problem is aging population. Think about it - the average productivity of an old person is much less compared to young population. If your productivity is low, your ability to grow GDP faster cannot be a reality. So US used outsourcing to rely on outside talent. But with Obama cracking down on outsourcing and 'Buy America, Hire America' slogan being pushed harder and nothing wrong with it considering record unemployment the challenge is who is going to improve the productivity? Hiring in America comes with a huge social burden and benefits which you do not pay when you outsource.

Third issue is over use of technology and less productivity in office. Most people in US and developed economies have gadgets that keep them connected to FB, Twitter, etc. A significant amount of population spends their time during office hours doing FB, Twitter, Online Chat, etc. Their attention span to work is very limited. It is like a student doing his homework keeping his favorite TV show and also Loud Music played in the same room. If you take away both, the student will be able to do his homework quicker and will also understand the subject better. Moreover, US only works 5 days per week while many offices in Asia work 6 days per week.

Fourth issue is US cannot raise personal income tax brackets to mop up collections. US average salaries have more or less stayed same in last decade with marginal increase. But inflation has had such a huge impact in lives of people that most people can hardly make their ends meet. Most people use Credit Cards to pay their bills and get into debt trap. If they have to pay higher taxes, they will need to earn more, Corporate America will have to pay more salaries to existing employees where productivity is low because of aging population and this means they cannot hire new people. It will also be likely that stimulus money and benefits will go away and then US Corporations will face the reality. Corporate Taxes with increased wages will mean poor results, bankruptcy, close down and layoffs.

Why is US fighting war across the world? What gains is it making in doing so? Why does it have to take the lead all the time to fight war against terror? Is bombing countries only the solution to fight terror? Why is it giving out millions and billions to countries like Pakistan who spread terror? Remember : There is huge cost involved when every soldier travels outside country on duty, when every bullet is fired and when every bomb is dropped. And in doing so, when you error in judgement, you make more enemies who are looking for first opportunity to go after your blood and cause terror in citizens. Osama became Osama because of US.

All of US 1.5 trillion Balance Sheet reserve that corporate America has and $500 billion that private equity has will not help America. Industry has grown so fast that every human is working at peak capacity literally having no time for family, kids. Stress level in young and old is very high. The costs are even higher.

And you have a huge problem - intangible assets get so much value and investment when they get pushed out by competitor, millions are lost. Think about twitter on verge of being pushed out by google and all twitter investors, value - **puf**.

America has something going really wrong.

If you are paying or expecting money from someone who is already in debt, you will have challenges. He will either not pay, delay payments or to cut expenses he will cut the contract and purchasing. Giving the scenario, Indian IT companies who already were having huge bench and record under utilization of resources will cut headcount. This is bound to happen.

We will soon see impact of US downgrade, its raising debt ceiling in Indian markets too. Keep your budgets tight and do not assume you have a stable job.