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How The US Debt Ceiling Could Affect You

One_US_dollarJust when you thought there was nothing left for us to worry about than a $16 trillion monster appears over the horizon.

Yes, it is that time in the American financial calendar when US lawmakers start frothing at the mouth over the US debt ceiling again. I am sure some politicians are beside themselves with excitement at the thought of getting more air-time on television than Oprah.

Thing is, you don’t need to be an economics genius to know that America’s national debt needs to be tamed. At $16 trillion and rising, it is more than the total economic output of the country in one year.

However, America is not about to find a panacea for its excessive borrowings within the next six days or so. This is a long-term problem that needs long-term solutions.

Unfortunately, short-term careers politicians are not that interested in looking for one just yet. Over the last 53 years, the debt ceiling has been raised 78 times and this time is unlikely to be any different. That, by the way, is an average of three debt-ceiling hikes every two years.

Whatever you might think (or not think) about America’s debt, it hasn’t stopped businesses either in the US or elsewhere in the world from growing.

For instance, over the last 20 years, the Straits Times Index (SGX: ^STI) has risen from 1,995 points to 3,200 points.

In fact, over the last two decades, companies such as Keppel Corporation (SGX: BN4) and Jardine Cycle & Carriage (SGX: C07) have delivered total annual returns of 11% and 12% respectively. Meanwhile food processor Yeo Hiap Seng (SGX: Y03) and supermarket chain Dairy Farm (SGX: D01) have returned 17% and 23% a year respectively.

That’s not bad considering that during that time the US national debt had ballooned from $4 trillion to over $16 trillion.

Over the next few days the stock market could fluctuate. But remember what Warren Buffett once said: “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

So, if you are a long-term investor, the next few days could be a time of great opportunity rather than a period of severe threat. Only those who don’t know what they are doing should worry, sound worried or spread worry. But if they don’t know what they are doing, then they are certainly not worth listing to.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.