What is a debt crisis?
The statutory limit of the amount of
indebtedness the government of the
United States can have.This limit is also
known as the debt ceiling.
The United States Department of the
Treasury has no authority to issue or incur
debt beyond the debt ceiling set by
FAILURE OF RAISING DEBT
A failure to raise the debt
ceiling meant that
potentially certain debts
would not be paid, and
this would potentially
affect the government's
ability to borrow quickly
or at lower cost, due to a
perception of increased
risk in loaning money to
the US government.
If the debt ceiling were
not raised, either
would have to be
decreased, or debt would
have to be paid later than
promised, also known as a
The last time before the current crisis that
Congress increased the debt limit was on
February 12, 2010. At that time, the ceiling
was set to $14.294 trillion.
For the entire 2011 fiscal year, there was an
estimated $3.82 trillion in expenditures
with expected revenues of $2.17
trillion, leaving a deficit of $1.48
trillion.Therefore, soon after the final budget
was passed, the debt ceiling was reached. When
the debt ceiling is reached, the U.S.Treasury can
declare a debt issuance suspension period and
utilize methods other than issuing new debt to
acquire funds to meet federal obligations.
SOME CAUSES OF THE DEBT
Wars fought in
benefits for the
to $272 billion.
and tax cuts
Nearly all Republican legislators opposing any
increase in taxes.
The large majority of Democratic legislators viewing
tax increases as necessary along with spending cuts.
The immediate crisis of 2011 ended when a complex
deal imposing limits on both debt and government
spending was reached on July 31. After the
legislation was passed by both the House and
Senate, President Barack Obama signed the Budget
Control Act of 2011 into law on August 2, the day of
After initially, promising tax rises for the rich
to go alongside deep spending cuts, Obama
ended up signing a debt agreement with the
Republicans that contained no new revenues.
Not a single cent would come from the US’s
wealthiest while a burden of hundreds of
billions of dollar cuts would be borne by some
of the poorest.
It was a tough but necessary medicine, but
having swallowed it, US got downgraded
anyway and markets still fell.
ACT OF 2011
The humiliation of seeing a AAA rating tumble to an
AA+ with a negative outlook has the potential to
further damage President Barack Obama’s weakened
After the S&P’s ratings, it is now terribly
clear that the American economy is terribly
IT IS FAILINGTO CREATE JOBS AND MIGHT
DOUBLE-DIP BACK INTO RECESSION.
Hong Kong, UAE and some other countries who have
associated themselves with the $ will find their currencies
weakening and some of them might consider delinking
themselves from $.
The debt crisis will impact the earnings of oil producers
in the Middle East.
Half of China's $3.2 trillion foreign reserves invested in US
UK CAPITAL, LONDON WITNESSESTHEWORST
RIOT IN YEARS:
Police cars, shops torched & stores looted in
Tottenham and other cities.
Riots amid deep gloom in Britain with the
economy struggling to grow amid deep public
spending cuts and tax rises brought into to help
eliminate a budget deficit.
“Unemployment isVERY,VERY HIGH and the
citizens are highly frustrated.”
Rioting points to widening gap between have &
have-nots as prospects for many youths look dim
THE EURO ZONE
THE INDIAN SITUATION:
“The downgrade is a wake-up call to fiscal management in
the US.We, in India, need to monitor global responses
from policy makers and markets to this situation.”
-YV Reddy,Former Governer, RBI
“More than the downgrade what is important is the slow
pace of recovery of the US…it will have implications for
developing economies in terms of trade and capital flows.”
- C Rangarajan,Chairman, PM’s Economic Advisory Council
Despite these assurances, the investors lost
Rs 1 lakh crore as Sensex plunges to below
WHAT ABOUT GOLD?
People are now expected to buy gold,
sliver and other precious metals besides
exchange traded funds with gold as they
are safe havens when currencies lose
Gold continued its uninterrupted historic
high driven by bullish wave in the
overseas. Gold prices have now zoomed
from Rs. 395 to Rs. 26,000 per 10 gm.
A few days ago, legendary fund manager, Bill
Gross made a statement that could turn out
to be prophetic in a not-too-distant future
The US will one day plead……
“FORGIVE US OUR DEBTS, AS WE FORGIVE