US debt default and Japanese model train purchases

[bill937ca]

A very big shock could be coming to the our Japanese model train market.  There is a strong possibility the US will default on its debt payment on August 4th.  This is not an economic issue, but rather a political issue that can and will send economic shock waves.

 

American debt at 70 times GDP is no where near the levels of Europe or Japan, but US tax revenues are the lowest in the world.  Tax avoidance is much lower in the US at about 8% versus 20-25% in Europe.  The problem is a lack of tax revenue.

 

How big is the U.S. debt?

 

http://www.theglobeandmail.com/report-on-business/how-big-is-the-us-debt/article1990363/?from=1993054

 

Estimated Size of Underground Economies

 

http://www.theglobeandmail.com/report-on-business/europes-underground-economies/article2077795/

 

As almost all Japanese model train purchases involve some foreign currency transaction (unless you keep all your funds in Japanese Yen) there will be a major impact on the hobby. Dealers like Plaza Japan that price in US dollars will have to raise prices to recover their original outlay in Yen.  American vendors trying to restock will find their costs soaring. Outside the US, most modelers will probably be less effected with a slight chance of things becoming more affordable.

 

Here's a worst case scenario laid out this week.

 

1. Congress doesn’t raise the $14.3-trillion debt ceiling by Aug. 2.

 

2. U.S. Treasury is unable to make a $30-billion debt payment due on Aug. 4.

 

3. The U.S. credit rating is cut, and investors demand higher interest rates to hold U.S. debt.

 

4. The government is forced to pay billions more to borrow money.

 

5. Government spending is reduced, slowing the economy.

 

6. Consumers and businesses, forced to pay higher interest rates to borrow money, cut back.

 

7. Foreign investors flee U.S. securities, the dollar devalues, and inflation soars.

 

8. Stocks plunge amid a widespread loss of confidence.

 

There's no way to tell for sure what will happen. There could be a chain reaction much like the economic meltdown if the US defaults which may effect other countries.  I'm not very optimistic that common sense will prevail.

[Guest Closed Account 1]

Does this really need to be posted at all?

 

In "New Releases, Product Announcements and Suppliers "?

 

I mean at least post it in "Offline".

 

Take off, eh.

[The_Ghan]

Hi Bill,

 

Your thread probably should have been in the "Off Topic" section, but the problem still remains, doesn't it!  How does the USA get it's debt level down.  70 x GDP is, actually, quite a high debt level.  Nearly $47k per person (including everyone who doesn't work - babies, children, homeless, elderly, etc.).

 

Three years ago in Australia our foreign debt was 0.53 x GDP.  I'm not an economist and Google hasn't helped me find any more recent data except for a brief article indicating that our foreign debt has been growing on average of 6.3% p.a. over GDP.  That would put us on about 0.677 x GDP today.  The USA debt level is more than 100 times that of Australia.  As I'm all for Australia returning to sub 0.50 I'd guess that most Americans would crap themselves if they knew the full potential impact of their situation.

 

Thanks for bringing this topic to light Bill.  Americans have every right to be scared!

 

I decided to check my facts.  US debt is not 70x GDP as Bill suggested, but the debt per capita (population) is roughly as I calculated.  Here's a wiki link that will help: http://en.wikipedia.org/wiki/Foreign_debt_by_country.  You'll notice that Australia has a higher debt per capita than the US.  Now I'm scared! 

 

Cheers

 

The_Ghan

[bikkuri bahn]

America's banker and landlord (China) is also showing concern:

http://www.nytimes.com/2011/07/10/sunday-review/10sanger.htm

 

Superficially, a weaker dollar is better for me: my salary goes up in dollar terms, books from the U.S. and GB are cheaper, and that Europe trip seems alot more affordable.

[David]

Keep in mind the difference between US and Japanese dept (or Chinese dept for that matter). The US has a lot of its dept to foreign countries (China holds the lions share). By comparison Japan and now China are funding their infrastructure expansions by borrowing mostly from themselves (the US borrows from itself too, it just can't take as much as it would want without affecting other numbers).

[disturbman]

Your thread probably should have been in the "Off Topic" section.

 

I agree...

 

But... Where does this figure of US debt being 70 times the GDP come from? From what I've heard US standing debt is actually around 98% of the country annual GDP. Which is way less than Japan which have a debt hovering around 225% of the annual GDP.

 

Also last thing, is there any real risk of the States defaulting on their debt?! I just can't see that happening... or their situation is way worse than I know. The US debt is somehow on par with what is normal in the EU. From what I understand the actual debate is whether the government will get the approval to make the debt bigger... which means the US have the mean to pay for more debt.

[David]

Your thread probably should have been in the "Off Topic" section.

 

I agree...

 

But... Where does this figure of US debt being 70 times the GDP come from? From what I've heard US standing debt is actually around 98% of the country annual GDP. Which is way less than Japan which have a debt hovering around 225% of the annual GDP.

 

Also last thing, is there any real risk of the States defaulting on their debt?! I just can't see that happening... or their situation is way worse than I know. The US debt is somehow on par with what is normal in the EU. From what I understand the actual debate is whether the government will get the approval to make the debt bigger... which means the US have the mean to pay for more debt.

 

Yes, Japan is much higher then the US, though as I said they mostly owe to themselves. The thing about the US defaulting is that while it is crazy (it's mainly a procedural thing to keep the payments up, while 'missing' a payment will have a big affect on how creditors rate the US) it's wrapped up in a lot of partisanship - it's gotten to the point where one party will cut off its nose just to spite the other.

[Mudkip Orange]

Does this really need to be posted at all?

 

In "New Releases, Product Announcements and Suppliers "?

 

I mean at least post it in "Offline".

 

Take off, eh.

 

Do you think the scenario he outlines is really that implausible?

[The_Ghan]

You'll note I've just amended my position above.

 

Cheers

 

The_Ghan

[keitaro]

US

Public debt $14.77 trillion (Jun 2011)[8] 99% of GDP

Revenues $2.162 trillion (2010)[9]

Expenses $3.456 trillion (2010)[9]

Economic aid ODA $19 billion, 0.2% of GDP (2004)[10]

Foreign reserves US$140.607 billion (May 2011)[13]

 

 

AUS

Public debt 22.4% of GDP (2010 est.)

Budget deficit A$20.3 billion (2011-12)[7]

Revenues A$350.0 billion (2011-12)[7]

Expenses A$365.8 billion (2011-12)[7]

Economic aid donor: ODA, $2.5 billion (2005/06 Budget) [8]

Foreign reserves US$41.212 billion (March 2011

 

 

massive difference

 

http://en.wikipedia.org/wiki/Economy_of_Australia our gross external debt is $1.169 trillion (31 December 2010 est.) according to wiki which at times can be very inaccurate.

 

Eitherway is this not just the debt owed by everyone? which would make sense for aus as most loans through banks is financed from overseas.

 

correct me if i am wrong i know little about finance other than my own 

[The_Ghan]

Keitaro,

 

You are measuring Public Debt.  That is only a portion of a nation's debt.  You should be considering Gross External Debt.  Australia is right up there in the 95%+ with the USA.

 

Cheers

 

The_Ghan