Us debt crisis

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Us debt crisis

  1. 1. WELCOME
  2. 2. SHOULD U.S. RAISE ITS DEBT CEILING?
  3. 3. THE FLOW• The Current Scenario• How did they reach here• Why do you need debt ceiling?• The Criticality of the situation• Issues if they raise and if they don’t raise the ceiling• Open Forum
  4. 4. CURRENT SCENARIO• US $14.29 trillion• 96% of GDP• AAA rating since 1917
  5. 5. Have High Debt and High RatingWhy US has been able to raise so much money
  6. 6. THE DOLLAR• Largest industrial base and surplus of dollarbacked by Gold post 2nd world war.•1971: The Dollar was fixed as Reserve Currency.• 1973 oil crisis: Increase in US treasury billsheld by central governments•As a result demand for Dollar increased in theworld arena.
  7. 7. WHO IS HOLDING THIS DEBT
  8. 8. DEBT CEILING
  9. 9. 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.
  10. 10. IMPORTANCE OF DEBT CEILING
  11. 11. 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
  12. 12. But you can always increase it
  13. 13. The REASONS From a forecast annual surpluses of$850 billion for 2009–2012 to deficit reality of $1,215 billion
  14. 14. How serious is this issue of Debt ceiling
  15. 15. Default inpayment
  16. 16. Default in Employmentpayment
  17. 17. Default in Employmentpayment Inflation
  18. 18. Default in EmploymentpaymentInflation Exchange Rate
  19. 19. GDPDefault in EmploymentpaymentInflation Exchange Rate
  20. 20. GDPDefault in Employmentpayment National IncomeInflation Exchange Rate
  21. 21. GDPDefault in Employmentpayment National Income Stock MarketInflation Exchange Rate
  22. 22. GDPDefault in Employmentpayment National Income Stock MarketInflation Exchange Rate Dollar Value
  23. 23. GDP Employment Default in paymentInterest National Rates Income Stock Market Inflation Exchange Rate Dollar Value
  24. 24. IF THEY DON’T RAISE THE DEBT CEILING
  25. 25. • Decrease in Expenses• Effect on Stock Market• Sky High mortgage and Interest rate• Treasury Bond Collapse
  26. 26. BUT WHAT IF THEY RAISE THE DEBT CEILING
  27. 27. Dollar weakens
  28. 28. Imports• Imports become dearer.• End up paying more money for same quantity of goods purchased.• Pace of economic growth rate slows down.
  29. 29. Exports• Exports become cheaper.• Importer country ends up buying same amount of goods for a lesser price.• As a result of increase in exports, the trade deficit might decrease.
  30. 30. INFLATION• As imports get dearer, inflation increases.• Prices of goods increases.
  31. 31. INTEREST RATES• As a result of increase in inflation, the interest rates will go up.• Investor confidence will go down.• As a result the investment in the economy will go down.
  32. 32. CAPITAL FLIGHT• Flow of funds or investments from develop to developing countries.• Increases unemployment in the country.
  33. 33. CAPITAL FORMATION• Investments and capital formation are positively correlated.• 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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