Us debt crisis
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Transcript of Us debt crisis
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WELCOME
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SHOULD U.S. RAISE ITS
DEBT CEILING?DEBT CEILING?
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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
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CURRENT SCENARIO
• US $14.29 trillion
•• 96% of GDP
• AAA rating since 1917
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Have High Debt and High Rating
Why US has been able to raise so much money
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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.
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WHO IS HOLDING THIS DEBT
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DEBT CEILING
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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.
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IMPORTANCE OF DEBT
CEILINGCEILING
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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
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But you can always increase it
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The REASONS
From a forecast annual surpluses of
$850 billion for 2009–2012 to deficit reality of
$1,215 billion
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How serious is this issue of Debt ceiling
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Default in
payment
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Default in
paymentEmployment
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EmploymentDefault in
payment
Inflation
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EmploymentDefault in
payment
Rate
Exchange
RateInflation
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Employment
GDP
Default in
payment
Inflation
Rate
Exchange
Rate
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Employment
GDP
Default in
payment
National
Inflation
Rate
Exchange
Rate
National
Income
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Employment
GDP
Default in
payment
National
Inflation
Rate
Exchange
Rate
National
Income Stock Market
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EmploymentDefault in
payment
National
GDP
Dollar Value
Inflation
Rate
Exchange
Rate
National
Income Stock Market
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Employment
Interest National
GDP
Default in
payment
Dollar Value
Inflation
Interest
Rates
Rate
Exchange
Rate
National
Income Stock Market
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IF THEY DON’T RAISE THE
DEBT CEILINGDEBT CEILING
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• Decrease in Expenses
• Effect on Stock Market
• Sky High mortgage and Interest rate
• Treasury Bond Collapse
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BUT WHAT IF THEY RAISE
THE DEBT CEILINGTHE DEBT CEILING
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Dollar weakens
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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.
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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.
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INFLATION
• As imports get dearer, inflation increases.
• Prices of goods increases.•
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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.
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CAPITAL FLIGHT
• Flow of funds or investments from develop to
developing countries.
• Increases unemployment in the country.• Increases unemployment in the country.
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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.
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