Catherine Clark who resided at San Francisco was born in debt, lived in debt and died in debt. When she was born as a beautiful young daughter to a middle aged couple her father paid the hospital bills through credit card. All throughout her life Catherine used the Master card and never reached for her cash and when she passed away her children paid her funeral bills through plastic money . The United States of America with a GDP in excess of US $ 11 trillion is facing its worst ever test in recent memory. Debt levels are rising for the millions of Catherine Clarks across the nation and while the President tries to block outsourcing contracts to India the Fed Reserve prints more and more dollars to keep the ball rolling.

The US faces a Current account deficit of more then US $ I billion per day, the debt to GDP ratio at about 300% is the highest ever, even during the times of the great 1929 depression this ratio was around 260%, the budget surplus that the US used to generate in the early 1990's have given way to budget deficits now forecast at $520 billion this fiscal year at over 4.5% of GDP, spreads between 30 year T- bills and corporate bonds have been on a rise clearly indicating the falling quality of corporate paper. The United States appears set for one of the most eventful eras in the post globalization period.

Savings as most of the economists say is a personal virtue but a macro curse. A larger amount of consumption creates demand for goods and services, which further generates employment and output. The Americans with their larger then normal propensity to consume have been too far dependent upon the debt form of financing.. The personal savings rate have plummeted to less then 1.3%  The need of the hour is for Americans to reduce their debt levels and increase their level of savings

The easy money policy of the Federal Reserve leading to forceful reduction in interest rates is encouraging households to borrow further rather then repay off old debts. Unemployment seems to be rising forcing the Govt. to substitute employment for productivity, Public protests call for banning out sourcing. Some one rightly remarked even the most intelligent people in the world would not complain being inefficient when it comes to keeping up their jobs. Adam Smith's famous division for labor concept and The Ricardian theory of Comparative costs do not apply to Corporate America. The economic superpower faces deflation with rising debt levels - if only macroeconomics were a bit easier.

Warren Buffet the saga of Omaha and one of the most vocal proponents of long term investing in a report to the shareholders of Berkshire Hathway opined "In recent years our country's trade deficit has been force-feeding huge amounts of claims on, and ownership in, America to the rest of the world. For a time, foreign appetite for these assets readily absorbed the supply. Late in 2002, however, the world started choking on this diet, and the dollar's value began to slide against major currencies. Even so, prevailing exchange rates will not lead to a material letup in our trade deficit. So whether foreign investors like it or not, they will continue to be flooded with dollars. The consequences of this are anybody's guess. They could, however, be troublesome - and reach, in fact, well beyond currency markets".

Since a majority of these investments would flow into the top 100 stocks the sensex would rise by around 12% on the simple demand supply analysis. After all more money chasing few stocks would make stocks dearer. Even if the FII were to hold money in rupee terms through the debt route they would make around 7.5% (5% as interest and 2.5% for the dollar depreciation). The message is ringing loud and clear FII's stay back from India at your own peril.

The US Government retirement accounts presently financing federal expenditure spending will evaporate over the next few years as the ageing population of the US spends more on health care and medicines. Health care costs are set to spiral upwards as the population is painfully skewed towards the older generation.

The artificial forces that keep the dollar afloat is the amount of Treasury bills that the Asian Economies buy each year to keep the dollar strong. It is estimated that China and Japan could finance the total American borrowing program this year. It suits these countries to keep their currencies weak (this will encourage exports and discourage imports) as a result they are betting on buying promissory notes of an Economy who is repaying old debt through fresh borrowings - for smaller economies they call it a debt trap I hope the US is not falling into a death trap fresh foreign borrowings is keeping US bond yields suppressed and also supplementing the borrowing needs of the US.

The US Stock market Capitalization to GDP ratio exceeds a factor of one. Empirical evidence does not encourage bullishness on this count. The GDP also does not indicate any significant signs of moving up further. The only case for being bullish on US stocks would be to expect a higher Market Capitalization to GDP ratio - if that happens it would make US Stocks more over valued. Any body betting on US stocks is betting on the greater fool theory that is you buy an over valued stock expecting it to get over valued further before a greater fool buys it back from you at a higher price.

Although how much pessimistic I may sound the elephant does not die easily and whenever it catches cold the small animals cry pneumonia only to be terrified by the sneeze that the animal takes. While in School we were told that Economics is a science of assumptions and as long as it represents a tendency it is all right but when it sets to put down an inflexible mathematical formula it falls to the ground.