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
CURRENT SCENARIO• US $14.29 trillion• 96% of GDP• AAA rating since 1917
Have High Debt and High RatingWhy US has been able to raise so much money
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.
Imports• Imports become dearer.• End up paying more money for same quantity of goods purchased.• Pace of economic growth rate slows down.
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.
INFLATION• As imports get dearer, inflation increases.• Prices of goods increases.
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.
CAPITAL FLIGHT• Flow of funds or investments from develop to developing countries.• Increases unemployment in the country.
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.