#ctto
DISCLAIMER: Personal Opinion, not to be construed as financial advice
The United States has been on "trade deficit" for decades, in layman's terms this is spending more than what it is earning.
To finance itself, it has resorted to borrowings usually by the sale of debt securities in the form of Treasury Bills and Notes, countries with surplus bought these en masse as there is no other outlet for their massive dollar holdings. China and Japan (countries with trade surplus with the US) notably held large quantities of these treasury securities.
As a check for fiscal responsibilities, the US Congress has set certain limits on how much the US government can borrow, this is the "Debt Ceiling" currently at $ 31.38 Trillion
As the US government has already spent most of it, it is now in a situation where it can default (because it run out of cash) which could lead to a lot of negative consequences, imagine a borrower of yours telling you that he can't pay what he owes you.. how would you react?
The current issue is whether the US Congress will allow the raising of the Debt Ceiling enabling the US government to borrow more.
If this is not approved, it may lead to a downgrade of US credit rating which will push US interest rates up as it will be deem "riskier" and will be forced to offer a higher rate - higher interest is generally not beneficial to the stock market so a portfolio rebalancing may be in order for our clients to reduce their equity exposure.
If this is approved this will lead to a deluge of new treasury bills issuance (some estimate up to $1 Trillion), as the US may maintain its credit rating and as these new supply starts flooding the market, this may lead to lower interest which will be beneficial to equities - for our client's portfolio maybe add on more equity exposure.
All the best my friends!
#acgadvice
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