Us debt crisis
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Transcript of Us debt crisis
Fiscal Deficit
When a Government’s Total Expenditure exceeds its generated revenues it is known as a fiscal deficit
Revenues
Expenditure
Debt Debt differs from deficit as it is the
accumulation of yearly deficits.
Historic Debt Chart 1930-2011
US Budget PolicyAs all other major economies worldwide the US Budget is
passed for the coming year and an estimated Deficit is calculated in it.
The last part of this year’s budget was passed in April and it estimated its revenues at 2.17 trillion$ as against an expenditure of 3.82 trillion$ i.e. a deficit of 1.65 trillion$
P.S. : The whole Indian Economy is less than 2 trillion$
US Debt PolicyWhenever there is a budget deficit the US
government covers this shortfall by its Treasury, to
borrow this shortfall by issue of bonds and other debt instruments.
This is pretty normal in US and there are always more than enough people to lend them as they are seen as a very safe investment.( remember they were rated AAA)
These bonds can be held by banks, Corporations and even by foreign countries
US Debt Ceiling Post World War I, The Congress put a cap on
US Borrowings as “ Debt Ceilings”. The Government can borrow money as long as it is below this debt Ceiling.
US Congress can increase this ceiling and it has been almost every other year since its inception
On April 15, 2011 this ceiling stood at 14.294 trillion $
US Debt Crisis TimelineEarly 2011, S&P and Moors Credit Rating Agencies warns
US of a possible DowngradeApril, 2011 US Congress Passes the Final Part of Annual
Budget with a deficit of 1.65 Trillion$May, 2011 US Debt ceiling of 14.29 Trillion$ is reached June-July, 2011 The house of representatives (Republican
Dominated) is unwilling to increase the Debt ceiling without cuts in expenditure
July 2011, US face a Possible default with a deficit of 130 billion$ on Aug 2, 2011
July 31, 2011 US avoid default through an agreement Aug 6, 2011 Standard & Poors downgrades US rating from
AAA to AA+
Unemployment in US
The Unemployment in US is at an all time high of 24%The government has to pay them for Unemployment and medical benefits escalating the overall Expense
The Deal….that saved the day
The US avoided the default by making a deal with the opposing Republican members in the House of Representatives as it was granted to raised the debt ceiling by 900 billion$ provided they cut back on expenses of 1 trillion$ in next decade.
YESIF
If US doesn’t cut back on its War ExpensesIf US doesn’t increase Corporate TaxesIf US thinks beyond Oil and Weapons as
income SourcesIf US increases interest rates on its bonds
NOUS Still has the Liquidity to last the rough
timesUS is still the favored destination for
investorsUS still is the strongest country in the worldUS has thwarted bigger crisis before
and above all else
Most of us doesn’t want it to happen