Us debt crisis
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Transcript of Us debt crisis
WELCOME
SHOULD U.S. RAISE ITS
DEBT CEILING?DEBT CEILING?
THE FLOW
• The Current Scenario
• How did they reach here
• Why do you need debt ceiling?
• The Criticality of the situation• The Criticality of the situation
• Issues if they raise and if they don’t raise
the ceiling
• Open Forum
CURRENT SCENARIO
• US $14.29 trillion
•• 96% of GDP
• AAA rating since 1917
Have High Debt and High Rating
Why US has been able to raise so much money
THE DOLLAR
• Largest industrial base and surplus of dollar
backed by Gold post 2nd world war.
•1971: The Dollar was fixed as Reserve Currency.
• 1973 oil crisis: Increase in US treasury bills
held by central governments
•As a result demand for Dollar increased in the
world arena.
WHO IS HOLDING THIS DEBT
DEBT CEILING
DEBT CEILING
• Limits the amount of public debt that
can be outstanding.
• Prevents the U.S. Treasury from
issuing new debt once the limit has
been reached.
IMPORTANCE OF DEBT
CEILINGCEILING
IMPORTANCE OF DEBIT CEILING
• Provides Congress with the strings to
control the federal purse
• A form of fiscal accountability
• Compels Congress and the President to
check their debt borrowings
But you can always increase it
The REASONS
From a forecast annual surpluses of
$850 billion for 2009–2012 to deficit reality of
$1,215 billion
How serious is this issue of Debt ceiling
Default in
payment
Default in
paymentEmployment
EmploymentDefault in
payment
Inflation
EmploymentDefault in
payment
Rate
Exchange
RateInflation
Employment
GDP
Default in
payment
Inflation
Rate
Exchange
Rate
Employment
GDP
Default in
payment
National
Inflation
Rate
Exchange
Rate
National
Income
Employment
GDP
Default in
payment
National
Inflation
Rate
Exchange
Rate
National
Income Stock Market
EmploymentDefault in
payment
National
GDP
Dollar Value
Inflation
Rate
Exchange
Rate
National
Income Stock Market
Employment
Interest National
GDP
Default in
payment
Dollar Value
Inflation
Interest
Rates
Rate
Exchange
Rate
National
Income Stock Market
IF THEY DON’T RAISE THE
DEBT CEILINGDEBT CEILING
• Decrease in Expenses
• Effect on Stock Market
• Sky High mortgage and Interest rate
• Treasury Bond Collapse
BUT WHAT IF THEY RAISE
THE DEBT CEILINGTHE DEBT CEILING
Dollar weakens
Imports
• Imports become dearer.
• End up paying more money for same quantity
of goods purchased.of goods purchased.
• Pace of economic growth rate slows down.
Exports
• Exports become cheaper.
• Importer country ends up buying same
amount of goods for a lesser price.amount of goods for a lesser price.
• As a result of increase in exports, the trade
deficit might decrease.
INFLATION
• As imports get dearer, inflation increases.
• Prices of goods increases.•
INTEREST RATES
• As a result of increase in inflation, the interest
rates will go up.
• Investor confidence will go down.• Investor confidence will go down.
• As a result the investment in the economy will
go down.
CAPITAL FLIGHT
• Flow of funds or investments from develop to
developing countries.
• Increases unemployment in the country.• Increases unemployment in the country.
CAPITAL FORMATION
• Investments and capital formation are
positively correlated.
• As investments go down rate of capital • As investments go down rate of capital
formation goes down.
• Hence government needs money to initiate
investments and growth in the economy.