Presented By:

Pankaj Yadav

U.S. Debt-Ceiling Crisis

What is U.S. Debt-Ceiling Crisis

The United States debt-ceiling crisis was a financial crisis in 2011 that started as a debate in the United States Congress about increasing the debt ceiling.

Background

•Under federal law, the amount up to what limit that the government can borrow to meet the deficit budget is the Debt Ceiling.

•This concept was introduced at time of World War l .

•These borrowings are done by the department of the Treasury

What is the Debt Ceiling

Process of Debt Ceiling

• Debt ceiling can increase by the vote of congress

• To change the debt ceiling, Congress must enact specific legislation, and the President must sign it into law.

• The process of setting the debt ceiling is separate and distinct from the regular process of financing government operations

Contd….

The debt ceiling has been raised 74 times since March 1962

including 18 times under Ronald Reagan, eight times under Bill Clinton, seven times under George W. Bush and three times (as of August 2011) under Barack Obama.

According to the Treasury, "failing to increase the debt limit would . . . cause the government to default on its legal obligations – an unprecedented event in American history".

These legal obligations include paying Social Security and Medicare benefits, military salaries, interest on the debt, and many other items

Treasury view-

Debt ceiling crisis is "self-inflicted”. It is a routine work of treasury.

it was used to score political points for the minority party.

Critics view

Different Issues to Resolve the Problem

Democratic party and Republican party have given important points to come out from this crisis in few months

American President has told that I need support of both the parties to represent the view of American people what they want ?

Democratic Party

This point proposed by American President

Because it is not about expending more money the raising the debts ceiling its simply ability to pay treasury bills

They are demanding a ceiling on such borrowing they believe that such borrowing will increase the debt burden

On future generation without helping the economy.

Increase the limit of debt ceiling from

12.93 to 14.29 trillion dollar

Republican Party

According to republican party

(opposition party)

Democratic Party

SENATE

According to democratic party

(these borrowing will help in future)

1. will invest in thousand of project2. it will increase employment. 3. Demand of goods and services will increase

SENATE has given two options

1. A balance budget amendment is sent to all states

2. The joint committee cuts spending by greater amount then requested debt ceiling

Democratic Party

The republican party proposed

deficit reduction plan

Republican Party

According to democratic

party

If govt. would reduce the expenditure it demand for goods and services would reduce.

The deficit reduction commission planed to $3.8 trillion deficit-cutting plan.

Democratic Party

Republican Party

According to democratic party

(reduction in unilateral

expenditure)

According to republican

party

For next 10 year1. Reduction in Defense 2. medical3. roadThe govt. would reduced $733 billion.

If this will happen most of the lenders would get uncomfortable in holding US bonds and would want start selling the bonds

Democratic Party

Tax reform should be considered

Republican Party

According to Democratic party

(agree but they want to reform tax after few year)

Because……??

If the govt. would increase the tax right now the demand of goods and services of the people at large would reduce.

if tax will reform the govt will get $751 billions.

Democratic Party

Directly question to the American people

People can mail ,tweet directly to us that will keep pressure on Washington (Senate)to move out from this crisis.

?

Democratic Party

If borrowing ceiling limit will

not increase than these things may happen

o U.S. military salaries and retirement ; o Social Security and Medicare; o federal civil service salaries and retirement ; o individual and corporate tax refunds; o unemployment to states; o defence vendor payments; o interest and principal payments on Treasury bonds and other securities; o student loan payments; o Medicaid payments to states;

1. The agreement cut spending more than it increased the debt limit.

2. The agreement established a Congressional Joint Select Committee that would produce debt reduction legislation by November 23, 2011.

Agreement

3. The goal of the legislation is to cut at least $1.5 trillion over the coming 10 years and should be passed by December 23, 2011.

4. Congress must vote on a Balanced Budget Amendment between October 1, 2011, and the end of the year

5. Projected revenue from the Joint Select Committee's legislation must not exceed the revenue baseline produced by current law

6. The agreement specified an incentive for Congress to act. If Congress fails to produce a deficit reduction bill with at least $1.2 trillion in cuts, then Congress can grant a $1.2 trillion increase in the debt ceiling

7 . The debt ceiling may be increased an additional $1.5 trillion if either one of the following two conditions are met:

1-A balanced budget amendment is sent to the states2-The joint committee cuts spending by a greater amount than the requested debt ceiling increase

1. If U.S government does not increase the debt limit it will cause catastrophic damage to the economy .

2. To reduce deficit American government has to increase the tax rate on middle class people which they don’t want to do so .

CONSEQUENCES

3.If debt limit doesn’t increase it will negatively effect the dominant rate of dollar in U.S market & also it will effect the world economy .

4. The dollar is expected to be weaker in forex market , If debt limit doesn’t increased .

5. If debt limit is not increased there is med rush of money into safer physical assets such as GOLD , METAL & OIL .

6. If debt limit will not increased it will effect payment on broad range of benefits and U.S obligation would be discontinued limited & adversely affect included :

- U.S military salaries and retirement benefits .

- Interest and principle payment on treasury bonds & other securities.

- Medical payment to the states .

FUTURE PLAN AGAINST DEBT CRISIS

1. There is $ 1 trillion in spending cut over next 10 year.

2. By the end of December congressional committee will have find somewhere else to cut $ 1.5 trillion .

3. U.S government will also reduce their spending on healthcare legislation and increase the tax rate .

4. If U.S government increased minor tax rate it will increase $ 3.6 trillion government revenue .

5. Mr. president has to make their debt market optimistic .

Thank you?