US is exporting inflation to the rest of the world , misusing their status as the reserve currency of the world
Trade Policy INFLATION TRADE POLICY FISCAL POLICY MONETARY POLICY GDP Trade policy affects the cost of imports and exports by regulating trade agreements with other countries. Critical creation of American exports and Support of new American jobs Main Focus 2010 Trade Policy Sustainable economic growth
Support and strengthen a rules-based trading system
Enforce American rights in the rules-based trading system
Enhance U.S. growth, job creation and innovation
Work to resolve outstanding issues with pending FTAs and build on existing agreements
Facilitate progress on national energy and environmental goals
Foster Stronger Partnerships with Developing and Poor Nations
Highlights Policy Agenda include key commitments to 7
Fiscal Policy 8 INFLATION TRADE POLICY FISCAL POLICY MONETARY POLICY GDP Fiscal Policy determines the appropriate level of taxes and spending in a country. The president and Congress adjust federal spending and taxes in the US. The US Debt is $13 trillion, largest in the world The U.S. Government's total revenue is estimated at $2.6 trillion for year 2011. For the year 2011, Federal spending is budgeted at $3.8 trillion. In FY 2011 the deficit is projected to be $1.26 trillion, the difference between $3.83 trillion in spending and $2.57 trillion in revenue. Although this deficit is huge, it is less than the $1.6 trillion deficit in FY 2010.
Monetary Policy 9 INFLATION TRADE POLICY FISCAL POLICY MONETARY POLICY GDP The Federal Reserve manages the monetary policy i.e. the money supply and use of credit. The use of national currency as the global reserve currency leads to tension between the national monetary policy and the global monetary policy. Measure of monetary policy: Money supply Growth and Interest Rate True Money Supply (1959 – 2008) United States Interest Rates
10 Index TRADE DEFICIT 1 Overview of the US economy 1 2 Trade Deficit 3 Budget Deficit 4 Conclusion 5
High prices of goods manufactured within the country
The country starts depending on foreign sources
Value of the currency might fall below equilibrium
US dollar Strengthened against other currencies Imports were almost free of cost. This increased the TRADE deficit After the collapse of Bretton woods, USA started misusing it’s status as a reserve currency and started printing notes
Service Trade Balance of USA Vs Other Countries Service Trade Balance : Export of services minus Import of Services US UK EA IND CHN BRA RUS JPN
Goods Trade Balance of USA Vs Other Countries Trade Balance : Export of Goods minus Import of Goods CHN JPN BRA IND UK US
19 Index FISCAL DEFICIT 1 Overview of the US economy 1 2 Trade Deficit 3 Budget Deficit 4 Conclusion 5
20 Fiscal Policy PRIMARY DEFICIT Current Government spending Total current revenues from all taxes Government Spending TOTAL DEFICIT Total tax revenues Interest payments on debts GOVERNMENT DEBTS Budgetary deficits when accrued for a very long
In fiscal year 2005, the deficit began to shrink due to a sharp increase in tax revenue.
Government spending in defense increased and a $1.35 trillion tax cut, the budget returned to a deficit basis free-falling from a $236 billion in 2000 to a $413 billion deficit in fiscal year 2004.
After September 11 attacks
The surplus nearly doubled to $125 billion, and then again in 2000 to $236 billion.
However, gross revenues exceeded expenditures and a surplus resulted in $69 billion.
1st Surplus since the collapse of the Breton woods
1998 - 2001
This pattern broke from fiscal years1970 to 1997
Federal budget deficit accelerated, topping out $290 billion in 1992.
1970 - 1997
The budget for 20th century followed a pattern of deficits during wartime / economic crises and surplus during peacetime economic expansion
Fiscal Deficit and Government Debt 27 BUDGET DEFICIT Occurs when an entity spends more money than it takes in. GOVERMENT DEBT Accumulated Governmental Deficit over several years is referred to as the Government Debt. NATIONAL DEBT GOVERMENT DEBT PUBLIC DEBT Money owed to those holding government securities + Intra-governmental debt OR GOVERMENT DEBT Considers all government liabilities, including future pension payments and payments for goods and services the government has contracted but not yet paid
Total Debt Vs Debt Relative to GDP(%) 28 NOTE:
As the debt ratio increases exchange value of the dollar may fall
Paying back debt with cheaper currency could cause investors to demand higher interest rates if they anticipated further dollar depreciation.
Paying higher interest rates could slow domestic U.S. growth.
29 Balancing Fiscal Deficit Sell off (Privatize) National assets Issue of Treasury Bills Raise Taxes Methods of Balancing Fiscal Deficit Printing excess money Resort the Plunder – by launching wars to acquire wealth to pay off their debts Repudiate the debt
30 Balancing Fiscal Deficit Issue of Treasury Bills/ Government Securities
U.S. Treasury securities are issued to finance the federal budget deficit. Of the public debt that is privately held, about half is held by foreigners
The Reduce spending on Medicare and Social Security
Resort the Plunder – by launching wars to acquire wealth to pay off their debts
Preparing For Future 31 Delays will magnitude of reforms needed & will place burden on future generations The unsustainable growth in Social Security & Medicare remains a long-term fiscal challenge to be addressed The Government has to make a vast commitment of financial resources to establish & maintain stability in the credit markets The Government must act to bring social insurance expenses & resources in balance The nation must change course before the deficit & debt reach unprecedented heights.
34 280 process and 170 technology professionals Diverse skill Sets – CA/ MBA/ Engineers/ CISA Industry / subject matter knowledge Team led by 16 Partners/ Directors Resources extensively trained in proprietary methodologies Integrated Advisory Practice with Over 600 professionals Thank you