To Whom Does American Owe Money?

The American National Debt is growing faster than the debt of any other world nation, it currently owes in excess of $2.7 trillion to foreign governments and other private investors. The debt equates to around 20% of the countries total GDP. This quick hub will give you the low down on who America owes and how much money they owe them, you should perhaps bear in mind that interest payments will make the true figure much higher - so who is profiting from America's overspending? Lets take a look.

1. Japan - $585.9bn

You think that your mortgage is big? Try telling that to the Japanese government, who are owed an astonishing $585.9bn by the American government- a sum which is difficult for any of us to even comprehend. Based on a rough American population estimate of 313 million people, this equates to $1,871 per American citizen. I find it quite frankly astonishing that America's biggest creditor is a country with whom it was at war just half way through the 21st Century

2. China - $541.0bn

Close behind Japan in the list of creditors is China who are owed some $541bn by America. That is another $1,728 that each American citizen owes to Asia. To think that America owes so much money to a country that it imports so much from is quite frankly economic suicide; Americans are purchasing many of their consumer goods from China, only for China to lend their money back to America and charge them interest on it. That's like buying a new sofa for $1000, then having the shop lend you back your $1000 but charge you.... say 10% APR on your own cash. Debt is power, and China certainly has a lot of power over America, it is believed that Chinese funding was used to meet the significant costs of the Iraq war. Taking over a country to topple one man that posed no direct threat to world safety was certainly an expensive exercise.

3. United Kingdom - $307.4bn

To be honest, this one surprised me greatly; particularly as the British have racked up significant national debts themselves. I wouldn't be surprised to see the UK calling in this debt in order to pay its own creditors, but this is still a sour debt for American people. America flourished after the first World War because of the huge UK debts that itself owned. It appears that the tables have turned however, and each American citizen now owes the UK $982. Since the population of the UK is about one-fifth of the size of the USA's, I will take a total of $4,910 from five of you please (paypal or cheques accepted)

4. OPEC Nations - $179.8bn

The OPEC Nations, this stands for the Organization of the Petroleum Exporting countries are basically Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, U.A.E. and Venezuela. I don't really understand this one, but I do find it rather amusing that the Americans owe Iraq money - having pretty much chosen to blow the place to bits, I suppose it is only fair that they pay the costs of damages. If your kid smashes your neighbours window whilst playing baseball, then you have to pay for the window, same rule applies to global politics it seems. To owe money to Angola, one of the developed world's poorest countries, seems ludicrous. I doubt that America could sink too much further.

5. Caribbean Banking - $147.7bn.

America also owes $147.7bn to the Caribbean Banking centres. This debt is basically owed to Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, Panama, and British Virgin Islands. To think that the USA owes so much cash to places with.... well, hardly any money themselves, is perhaps testimony to how low the country has sunk. The good news is that Obama intends to reduce America's debt, so hopefully Americans will no longer face the embarrassment of owing money to a bunch of tiny islands.@

Financing source

Where and how you finance an operation can be the difference between dominance and failure. All money may sound like good money in this environment. It isn't.

Often it makes the most sense to tap a few different sources of capital. One deal I arranged involved seven funding sources. That sounds like a hassle, but it ended up greatly reducing the company's cost of capital and saving it from bankruptcy.

There are myriad financing sources available for American entrepreneurs . Here are the 12 best, from least attractive to most. Two glaring omissions: venture capital--VCs fund just 3,500 of the 22 million small outfits in the U.S., and they only tend to hunt for companies with the potential for torrential growth--and a founder's own savings. If you don't know by now that financiers want to see some of your own skin in the game, you may already be in over your head.

12. Angelequity. If you must sell an ownership stake to get your company off the ground, start by finding a respected industry executive who is willing to invest a reasonable amount and give your venture credibility with other investors. The advice and networking--without all the heavy-handed demands of a VC--come in handy, too.

11. Smart leases. Leasing fixed assets conserves cash for working capital (to cover inventory), which is generally tougher to finance, especially for an unproven business. Warning: Don't put so much money down that you end up spending the same amount of cash as you would have had you bought the asset with a down payment. The cost of a lease may be slightly higher than bank financing (see source No. 10), but the cost of the down payment you did not have to make is likely to be less painful than the dilution you suffer from giving away equity.

10. Bank loans. Banks are like the supermarket of debt financing. They provide short-, mid- or long-term financing, and they finance all asset needs, including working capital, equipment and real estate. This assumes, of course, that you can generate enough cash flow to cover the interest payments (which are tax deductible) and return the principal.Banks want assurance of repayment by requiring personal guarantees and even a secured interest (such as a mortgage) on personal assets. Unlike other financing relationships, banks offer some flexibility: You can pay off your loan early and terminate the agreement. VCs and other institutional investors may not be so amenable.

9. SBA 7(a) loans. Of all the federally sponsored debt-financing programs, this is the most popular, and perhaps the best. It loosens the flow of credit by guaranteeing the lender against a portion of any loss incurred on the loan. Not to say that banks aren't careful when making 7(a) loans: They are required to keep the non-guaranteed portion on their books.

The interest rate can vary based on the size of the loan, with smaller amounts costing a little more. Shop around. Some banks reap servicing fees and nice profits by selling the guaranteed portion of the loan to insurance companies and pension funds; in those cases, a lender may be willing to offer you a better rate.

8. Local and state economic development organizations.Economic-development organizations can charge tantalizingly low interest rates when lending alongside a bank. Say you need to raise $200,000 for a building. A bank may offer $150,000 on a first mortgage at a variable interest rate of prime, now 3.25%, plus 200 basis points, for a total of 5.25%. The local development entity might lend you another $30,000 on a second mortgage at a fixed-interest rate of 4%, without seeking equity shares or warrants. (Without the development corporation's contributions, you would have to scare up $50,000 in equity--expensive.) If you don't have the cash flow to cover the interest, the development organization may offer extended terms. Some loans are interest-only for the first year or two, and even the interest payments can be accrued for a certain time period.

Development groups may not agree to finance an entire operation, but they make snagging the remainder from other private sources a lot easier. Talk to your local chamber of commerce to find these programs.).

7. Customers. Advance payments from customers--assuming the terms aren't too onerous--can give you the cash you need, at a relatively low cost, to keep your business growing. Advances also demonstrate a level of commitment by that customer to your operation. This strategy allowed them to grow faster and with limited resources, and to operate with relative impunity with respect to their investors.

6. Vendors: with financing from large consumer electronics firms--in other words, his suppliers. This way, your financiers do not control your growth; you do. Just be sure not to enslave yourself to a handful of powerful suppliers in the process.

5. Friends and family members. If you're lucky, friends and family members might be the most lenient investors of the bunch. They don't tend to make you pledge your house, and they might even agree to sell their interest in your company back to you for a nominal return.

4. Small Business Innovation Research (SBIR) grants. Getting past the paper-intensive application process and SBIR grants can be a great way to turn your intellectual property into mailbox money. For more on these grants, check out How To Get Uncle Sam To Fund Your Start-Up 3. Tax Increment Financing. TIF subsidies are geared toward real estate development in targeted areas. Depending on the state, the subsidies can be as large as 20% to 30% of the cost of the project. Better yet, you may even be able to borrow against this subsidized value. If your own community does not offer a TIF program, look at communities that do. You may end up a little farther from your home or office, but it could be worth your while.

2. Internal Revenue Service. No, the IRS does not lend money. But it does allow you to deduct expenses. If you are paying a heap in taxes, evaluate whether you can use your profits to expand your business--and reduce your tax bill.

1. Bootstrapping: Many billion-dollar entrepreneurs find a way to grow without external financing so that financiers don't control their destinies or grab a disproportionate slice of the wealth pie. For more on the sound strategic thinking you'll need in order to live on your own cash flow.

Structure ?

Capital structure is the proportion of all types of capital viz. equity, debt, preference etc. It is synonymously used as financial leverage or financing mix. Capital structure is also referred as the degree of debts in the financing or capital of a business firm. It is believed that with the change in capital structure, the value of a firm can be influenced. There are four approaches to this, viz. net income, net operating income, traditional and M&M approach. Financial leverage is the extent to which a business firm employs borrowed money or debts. In financial management, it is a significant term and an important decision in a business. In the capital structure of a company, broadly, there are mainly two types of capital i.e. Equity and Debt. Out of the two, debt is considered a cheaper source of finance because the interest payments are a tax deductible expense.

Capital structure or financial leverage deals with a very important financial management question. The question is - ‘what should be the ratio of debt and equity?’ Before scratching our minds to find the answer to this question, we should know the objective of doing all this. In the financial management context, the objective of any financial decision is to maximize the shareholder’s wealth or increase the value of the firm. The other question which hits the mind at the first place is whether change in the financing mix would have any impact on the value of the firm or not. The question is a valid question as there are some theories which believe that financial mix has an impact on the value and others believe it to be not connected.

How can financial leverage affect the value? 

One thing is sure that wherever and whatever way one sources the finance from, it cannot change the operating income levels. Financial leverage can, at the max, have impact on the net income or the EPS (Earning per Share). The reason is explained further. Changing the financing mix means changing the level of debts and change in levels of debt can impact the interest payable by that firm. Decrease in interest would increase the net income and thereby the EPS and it is a general belief that the increase in EPS leads to increase in value of the firm.

Apparently, under this view, financial leverage is a useful tool to increase value but, at the same time, nothing comes without a cost. Financial leverage increases the risk of bankruptcy. It is because higher the level of debt, higher would be the fixed obligation to honour the interest payments to the debts providers. Discussion of financial leverage has an obvious objective of finding an optimum capital structure leading to maximization of value of firm. If cost of capital is high

Important theories or approaches to financial leverage or capital structure or financing mix are as follows: Net Income Approach: This approach was suggested by Durand and he was in the favour of financial leverage decision. According to him, change in financial leverage would lead to change in cost of capital. In short, if the ratio of debt in the capital structure increases, the weighted average cost of capital decreases and hence the value of the firm.

Net Operating Income Approach: This approach is also provided by Durand but it is totally opposite to the Net Income Approach. It says that the weighted average cost of capital remains constant. It believes in the fact that the market analyses firm as a whole which discounts at a particular rate which is not related to debt-equity ratio.

Traditional Approach: This approach is not defined hard and fast facts but it says that cost of capital is a function of the capital structure. The special thing about this approach is that it believes an optimal capital structure. Optimal capital structure implies that at a particular ratio of debt and equity, the cost of capital is minimum and value of firm is maximum.

Modigliani and Miller Approach (MM Approach): It is a capital structure theory named after Franco Modigliani and Merton Miller. MM theory proposed two propositions.

Proposition I: It says that the capital structure is irrelevant to the value of a firm. Value of two identical firms would be same and it would not be affected by the mode of finance adopted to finance the assets. Value of a firm is dependent on the expected future earnings.

Proposition II: It says that the financial leverage boosts the expected earnings but it does not increase the value of the firm because the increase in earnings is compensated by the change in the required rate of return.

To summarize, it is very essential for finance professionals to know about the nitty-gritty of capital structure they have suggested to the management. Accurate analysis of capital structure can help a company save on the part of their cost of capital and hence improve profitability for the shareholders.

Private placement : solution

The one constant in the life of your small business will be the need for a cash infusion to jump start sales, expand into new markets, or continue to sustain growth. While there are a multitude of financing sources of funding available to small business owners, each source has its limitations and requirements. For instance, commercial bank loans are often intended for businesses that have been around and have shown a steady stream of profitability. Private placements are an attractive alternative for growing companies.

What is Private Placement? Private placement or private investment capital, is money invested in your company usually from private investors in the form of stocks and sometimes bonds. In the United States, private placement often does not need to be registered with the Securities Exchange Commission. Regulation D is the most popular form of non-public private placement.

According to Thompson Financial, over 416 billion was issued in the private placement market for 2002. As good as it sounds, the majority of those dollars came from pension funds, investment pools, banks and insurance companies amounting to just over 2,000 deals. However, private placement does exist for the small business owner and is often less expensive and easier than taking your company public.

Benefits of Private Placement: High degree of flexibility in amount of financing ranging from 100 thousand to 10-20 million with combinations of debt, equity, or debt and equity capital.

Investors are more patient than venture capitalists, often seeking 10 to 20% return on investments over a longer term of 5 to 10 years.

Much lower costs than approaching venture capitalists or selling the stock to the public as an IPO (Initial Public Offering).

Quicker form of raising money than usual venture capital markets.

Who is a Candidate for Private Stock Offerings? The ideal small business candidate is a company in the third stage of finance and is looking for growth or expansion funding. Small business owners might think private placement applies to start-ups when your company has completed product development, conducted a market-feasibility study and business planning but start-up funding often comes from angel investors.

Where to Find Private Placements? The money from private placements will come from accredited investors defined by the SEC Rule 501 under Regulation D as:

an individual earning 200k per year.

a household with income of $300K per year or having a net worth over $1M.

or venture funds, some banks and other institutions.

Connect with bankers, attorneys, and accountants who can network your small business with a private investor.

What is Required for Private Placements?

A. sound business plan

B. private placement memorandum (PPM) disclosing the full facts of the investment and business

C. law firm or lawyer experienced in private placements.

With the limited infusion of capital into the stock market, the private investor market is an attractive alternative for investors and small businesses. Private placement offers a viable form of business financing without the constraints of taking a company public and conceding control.

Risky Money Market..

Is your money market mutual fund safe? Historically these “cash” funds have done fine even in turbulent markets, but some experts nowworry that investors could suffer losse due to the European debt crisis. If you’re concerned, it might be a good time to consider a switch, perhaps to a money market account at your bank or credit union.

Throughout the years, money market funds have produced a good record of maintaining the $1-per-share value promised to investors. The sole exception in recent years was when the Reserve Primary Fund “broke the buck” in the heat of the financial crisis in 2008. After that the Securities and Exchange Commission took steps to reduce risk in money funds’ holdings, such as commercial paper issued by big corporations. However, those moves may not be enough if troubles in Europe continue to deepen.

The good news is that money fund yields are so low (averaging around 0.05% according to Crane Data) that inconvenience rather than lost earnings is the main issue when considering a switch out of one of these funds, which are provided by a brokerage or mutual fund company. In fact, the average money market account held at a bank yields more, about 0.175%, according to the BankingMyWay.com survey.

Money market accounts, like certificates of deposit and savings accounts, have federal FDIC insurance, making them as safe as can be. Money market funds do not.

Despite the funds’ slightly higher risks, many small investors use them as a convenient way to hold cash reserves or money that will later flow into other investments. If your money market and other investments are managed by the same institution, cash can be moved in and out of the money fund with a few clicks of a mouse or a phone call.

If the news out of Europe makes you nervous, the first step is to ask your broker or fund company what the money fund’s managers are doing to minimize their exposure to European securities. It may be that you have nothing to worry about.

If you still want to play it safe, though, move some or all of your cash to an FDIC-insured money market account, a CD, a savings account or a checking account, all available at any bank. These days most brokerages, fund companies and banks allow customers to set up electronic links to accounts at other firms to make it easy to transfer cash from one institution to another.

Keep in mind, though, that it can take several days for a transfer between institutions to be complete, probably longer than it takes for money to move between accounts within a single institution. If you need to have cash available for investing on short notice, you can keep the bare minimum in the money fund at the brokerage or fund company.

Generally, savers and investors are told to shop around for the best yields. While that’s sound advice, yields are currently so low it’s probably not worth opening an account at an unfamiliar institution just to earn a few more basis points. In fact, if you move thousands of dollars to your bank from your brokerage or fund company, you may get a better deal on your banking services, so be sure to ask.

Finally, study your bank’s terms. To get the highest yield in a money market account, for example, you’ll probably need a minimum deposit of $10,000 or more, and there might be restrictions on the number of withdrawals you can make over a given period.

Money Market Fund Reforms

The Securities and Exchange Commission adopted new rules designed to significantly strengthen the regulatory requirements governing money market funds and better protect investors.

The financial crisis and the weaknesses revealed by the Reserve Primary Fund's "breaking the buck" in September 2008 precipitated a full-scale review of the money market fund regulatory regime by the SEC. A money market fund "breaks the buck" when its net asset value (NAV) falls below $1.00 per share, meaning investors in that fund will lose money. The SEC's new rules are intended to increase the resilience of money market funds to economic stresses and reduce the risks of runs on the funds by tightening the maturity and credit quality standards and imposing new liquidity requirements.

"These new rules will have substantial benefits for investors and are an important first step in our efforts to strengthen the money market regime," said SEC Chairman Mary L. Schapiro. "These rules will help reduce risks associated with money market funds, so that investor assets are better protected and money market funds can better withstand market crises. The rules also will create a substantial new disclosure regime so that everyone from investors to the SEC itself can better monitor a money market fund's investments and risk characteristics."

Further Restricting Risks by Money Market Funds

Improved Liquidity: The new rules require money market funds to have a minimum percentage of their assets in highly liquid securities so that those assets can be readily converted to cash to pay redeeming shareholders. Currently, there are no minimum liquidity mandates.

• Daily Requirement: For all taxable money market funds, at least 10 percent of assets must be in cash, U.S. Treasury securities, or securities that convert into cash (e.g., mature) within one day.
• Weekly Requirement: For all money market funds, at least 30 percent of assets must be in cash, U.S. Treasury securities, certain other government securities with remaining maturities of 60 days or less, or securities that convert into cash within one week.

The rules would further restrict the ability of money market funds to purchase illiquid securities by:

• Restricting money market funds from purchasing illiquid securities if, after the purchase, more than 5 percent of the fund's portfolio will be illiquid securities (rather than the current limit of 10 percent).
• Redefining as "illiquid" any security that cannot be sold or disposed of within seven days at carrying value.

Higher Credit Quality: The new rules place new limits on a money market fund's ability to acquire lower quality (Second Tier) securities. They do this by:

• Restricting a fund from investing more than 3 percent of its assets in Second Tier securities (rather than the current limit of 5 percent).
• Restricting a fund from investing more than ½ of 1 percent of its assets in Second Tier securities issued by any single issuer (rather than the current limit of the greater of 1 percent or $1 million).
• Restricting a fund from buying Second Tier securities that mature in more than 45 days (rather than the current limit of 397 days).

Shorter Maturity Limits: The new rules shorten the average maturity limits for money market funds, which helps to limit the exposure of funds to certain risks such as sudden interest rate movements. They do this by:

• Restricting the maximum "weighted average life" maturity of a fund's portfolio to 120 days. Currently, there is no such limit. The effect of the restriction is to limit the ability of the fund to invest in long-term floating rate securities.
• Restricting the maximum weighted average maturity of a fund's portfolio to 60 days. The current limit is 90 days.

"Know Your Investor" Procedures: The new rules require funds to hold sufficiently liquid securities to meet foreseeable redemptions. Currently, there are no such requirements. In order to meet this new requirement, funds would need to develop procedures to identify investors whose redemption requests may pose risks for funds. As part of these procedures, funds would need to anticipate the likelihood of large redemptions.

Periodic Stress Tests: The new rules require fund managers to examine the fund's ability to maintain a stable net asset value per share in the event of shocks - such as interest rate changes, higher redemptions, and changes in credit quality of the portfolio. Previously, there were no stress test requirements.

Nationally Recognized Statistical Rating Organizations (NRSROs): The new rules continue to limit a money market fund's investment in rated securities to those securities rated in the top two rating categories (or unrated securities of comparable quality). At the same time, the new rules also continue to require money market funds to perform an independent credit analysis of every security purchased. As such, the credit rating serves as a screen on credit quality, but can never be the sole factor in determining whether a security is appropriate for a money market fund.

In addition, the new rules improve the way that funds evaluate securities ratings provided by NRSROs:

• Require funds to designate each year at least four NRSROs whose ratings the fund's board considers to be reliable. This permits a fund to disregard ratings by NRSROs that the fund has not designated, for purposes of satisfying the minimum rating requirements, while promoting competition among NRSROs.
• Eliminate the current requirement that funds invest only in those asset backed securities that have been rated by an NRSRO.

Repurchase Agreements: The new rules strengthen the requirements for allowing a money market fund to "look through" the repurchase issuer to the underlying collateral securities for diversification purposes:

• Collateral must be cash items or government securities (as opposed to the current requirement of highly rated securities).
• The fund must evaluate the creditworthiness of the repurchase counterparty.

Enhancing Disclosure of Portfolio Securities

Monthly Web Site Posting: The new rules require money market funds each month to post on their Web sites their portfolio holdings. Currently, there is no Web site posting requirement. Portfolio information must be maintained on the fund's Web site for no less than six months after posting.

Monthly Reporting: The new rules also require money market funds each month to report to the Commission detailed portfolio schedules in a format that can be used to create an interactive database through which the Commission can better oversee the activities of money market funds. The information reported to the Commission would be available to the public 60 days later. This information would include a money market fund's "shadow" NAV, or the mark-to-market value of the fund's net assets, rather than the stable $1.00 NAV at which shareholder transactions occur. Currently a money market fund's "shadow" NAV is reported twice a year with a 60-day lag.

Improving Money Market Fund Operations

Processing of Transactions: The new rules require money market funds and their administrators to be able to process purchases and redemptions electronically at a price other than $1.00 per share. This requirement facilitates share redemptions if a fund were to break the buck.

Suspension of Redemptions: The new rules permit a money market fund's board of directors to suspend redemptions if the fund is about to break the buck and decides to liquidate the fund (currently the board must request an order from the SEC to suspend redemptions). In the event of a threatened run on the fund, this allows for an orderly liquidation of the portfolio. The fund is now required to notify the Commission prior to relying on this rule.

Purchases by Affiliates: The new rules expand the ability of affiliates of money market funds to purchase distressed assets from funds in order to protect a fund from losses. Currently, an affiliate cannot purchase securities from the fund before a ratings downgrade or a default of the securities - unless it receives individual approval. The rule change permits such purchases without the need for approval under conditions that protect the fund from transactions that disadvantage the fund. The fund must notify the Commission when it relies on this rule..@