Debt crisis


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Debt crisis

  1. 1. What is the reasons behind the debt crisis??•The financial crisis that happened in 2008,had led to:1-a sharp drop in economic output2-led to the lack of the economic growth,3- but they found that this problem was caused by alack of profitability in productive areas.
  2. 2. Obama’s Reaction
  3. 3. government Budget deficit treasury Bonds and debt instruments Foreignbanks country corporations
  4. 4. There were always more than enough people to invest in Federal government bonds knowing that these bond were rated to be AAA and it was the safest types of bonds.
  5. 5. • the bond rating has declined from Ba3 to B1.• When a Bond ratings below BBB/Baa are considered to be not investment grade and are called junk bonds.
  6. 6. But the government kept issuing bonds and debt instruments without having enough revenues to cover this debt. So the gap between Government Government outlays revenues Kept widening and the debt kept increasing till it reached 14 trilliondollars were it were about to exceed the debt ceiling, and as the amountof money that the government can borrow is limited by the debt ceiling, Therefore the congress has agreed to raise the level of the debt ceiling on April 15, 2011.
  7. 7. If the debt would have exceeded the debt ceiling this might have led to a real crisis that the US might have enteredsovereign default this means that the US at that time will not be able to pay the interest and the principle at the maturity date of these bondsthereby creating an international crisis in the financial market
  8. 8. This action was accompanied by a plan Increase taxes Decrease expenditures the proposal to cut spending was the one who was supported by many democrats and republicans andthere has been a bill to have spending cuts of roughly $1 trillion.
  9. 9. So now the current debt is $15,071,624,794,970.66this means that every man, woman and child in the United States currently owes $48,358.74 for their share of the U.S. public debt
  10. 10. The US is indebted mainly to Americans. foreigners hold about $4.4 trillion of the national debt, with China and Japan owning the biggest chunks. We can see from the chart here that china owns the largestamount of this debt as they own about 21.09% of the whole debt owned by foreign countries, or about $1173.5 billion dollars. Next come Japan with a $914.8 billion dollars, or about 20.40%.
  11. 11. China
  12. 12. china accumulates a large amount of the US treasury notes .the RMB is significantly undervalued against the dollar and thathas been a major contributor to the large annual U.S. tradedeficits with China and the loss of U.S. jobs in recent years.So now the problem can be analyzed in two ways first they don’thave the money to pay for their debtsecond the Chinese products are competing with the US productsall around the world and in the US itself. So now with this unfaircompetitive advantage that china has, the US products will not beable to sustain .
  13. 13. Solution for the debt crisisCutting subsidiesCutting benefits……………………..