United states debt crises

1. Debt Crises
Around The
Globe

2. Introduction
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3. Introduction
Global public debt has been increasing over the previous few decades.
Cascading crises in recent years have accelerated this trend dramatically. As a
result, worldwide public debt has more than fivefold doubled since 2000
WHEN THE DEBT CRISIS HAPPENS?
It happens when the Government is unable to pay its governmental debt. This
always happens when tax revenues are less than Government expenditures for
a long period
In any country, the government raises taxes to pay its expenditures. However,
if taxes are not enough, the government issues debt by selling treasury bills in
the market to investors.
The Government that is able to pay back its debt will not face any difficulty
with investors but when the government is unable to pay, the investors begin
to worry, and they start asking for higher interest rates to avoid higher risk.
This resulted in an increase in governmental borrowing and the government
finds it difficult to pay its debit and enter a debit crisis.

4. Debt Ceiling
The Debt ceiling is the maximum amount the government can
borrow to meet its financial obligations. This limit is set by
legalization. If the treasury department cannot pay expenses
when the ceiling is reached, the risk will default on its debt.
Also, If the debt ceiling is not raised when needed, this may
lead to a governmental default on its financial obligations.
Raising the debt ceiling gives the government the power to
borrow and spend more.
The debt ceiling was first established in 1917 through the
Second Liberty Bond Act and was set at 11.5 billion to
facilitate the process of accelerating borrowing flexibility.
In 1939 congress established the first aggregate debt limit
covering approximately all government debt

5. Pros Cons
1- Fiscal discipline: the debt ceiling can make fiscal
management place a limit on the debt amount the
government can accumulate, preventing more
borrowing and spending.
2- Debt control: provides control of the growth of
national debt and encourages lawmakers to consider
the consequences of increasing debt levels.
3- Transparency: The debt ceiling debate brings
financial and budgetary issues into public focus hence
promoting transparency
1- Risk of default: if the debt ceiling is not raised and the government is unable to
meet its obligations this may lead to a default on its payment causing a financial
crisis.
2- Uncertainty: more debates and not raising the debt ceiling can create
uncertainty in financial marketing which may lead to volatility and negatively
affect economic growth.
3- Limit on policy flexibility: in cases of economic crisis. A strict debt ceiling can
restrict the government's ability to make necessary fiscal policy which affects
economic growth.
4- Market volatility: the uncertainty around the debt ceiling can lead to market
volatility, affecting both local and international markets.
5- Disruption of government: Failure to raise the debt ceiling may lead to
government shutdown.
6- Potential for downgraded credit rating: repeated uncertainty around the debt
ceiling may cause credit rating agencies to downgrade countries' credit rating
which will affect investor confidence negatively and increase borrowing costs.
7- Political gridlock: The debt ceiling may lead to political issues with lawmakers
leading to political gridlock and instability
Pros & Cons of DEBT CEILING

6. Potential
Economic impacts
of various debt
ceiling scenarios
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7. The relationship between the fiscal policy and public debt
Potential Economic impacts of various debt
ceiling scenarios
Why public debt? What is the main function
of fisical policy?
The answer of both question would represent the relationship .
A fiscal Policy aims to balance between the Governmental Revenue and expendetures. The
revenue is mainly represented in taxes and revenue gained by exportation .
● due to the dramatic increase in the publution rate and therefor the concumption rate beside
the increased importation level over the exportation level , many goverments in developed
contries was facing a dificit in the govermental budget due to the dramaticly increase of it‘s
expendetiures over it‘s revenue.
● As a result of the dificit in the fiscal policy many countries was imposed to borrow a public debt
to manage this dificit.
● Paying the debt service would be either through increasing the level of exportation over the
importation which is not always the case in many countries . Or throgh increasing the
govermental revenue by in creasing the taxtion rate .

8. The relationship between the public debt and the
economic growth in developing countries:
The lower the GDP the higher would be the public debt. A lower
GDP has many reasons such as:
• Imports are greater the exports
• Overall declining in the internal econmoic activities that
decrease the ability of the goverment to meet it‘s obligations
and therefore increase the posibility of borrowing debt.
The public debt to the GDP
ratio

9. Impact on the Internal
Economy
Government efforts to increase revenue and decrease expenses through
massive cuts of funds and increasing the taxation would lead to the
following:
Negative Impact
• Increasing the education expenditure
• Decreasing and eliminating the fund of all essential goods and
fuel.
• Low purchasing power due to an adjustable low-income level
(Taxes increase while the income remains unchanged)
• Increasing the interest rate on loans that would be a burden for
internal investors
• Low investment opportunities (uncertainty about the ability of
the government to repay its debt and high expectations for
reducing the capital fund and increasing the interest rate)
• Higher unemployment rate
• Higher inflation rate
Positive impact
Only in the short term as using a public debt enhances the liquidity
position for internal investment and must be faced by a higher GDP. This
will enhance also the income on the individual level.

10. Theoretical reasons for a negative relationship between
public debt and economic growth
• High public debt can negatively affect the capital structure for investors and therefore the business
growth opportunity via higher long-term interest rates
• Creating a growing climate of uncertainty about the upcoming direction of the fiscal policy
represented in increasing the taxation policy
• Depending mainly on public debt may hinder the country from effectively responding to
macroeconomic factors and crises and impose it to respond to the regulations declared by the lender
countries, e.g., reducing the internal economic growth, hiking the importation rate of the lender
country, etc. In other words, eliminates the monetary and fiscal independence.
• A higher public debt has an obvious direct negative impact on foreign investment, thus a foreign
investor questions whether to invest in a certain country and it depends on its ability to repay its debt
or borrow an additional debt to finance a new project or opportunity, in finance we call it “Debt
Overhang”.
Debt Overhang is simply defined as a higher public debt that prevents a country or an entity from
borrowing an additional debt, even if the proposed project has a positive net present value.

11. Best relief
programs &
suggested
solutions
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12. 5 goventment’s
strategies to reduce
National debt
Governments can adopt a variety of steps to lower
their national debts. From releasing additional debt
to pay off existing debt and buying back debt to
decreasing interest rates, receiving a bailout, or
defaulting on loans, such acts may have some
short-term success but are always met with
opposition and condemnation.
The most effective (and least popular) method of
paying off the national debt is to decrease spending
and raise taxes.

13. 5 government's strategies to reduce
National Debt
Issuing more Bonds
Getting into Debt to Pay Off Debt
Governments frequently issue bonds in order to borrow money. This allows them to avoid rising taxes while also
funding spending. It can also stimulate the economy through government spending.
In theory, this increased spending may generate greater tax revenue from profitable businesses and taxpayers,
which could be used to pay down debt.
Issuing debt may appear to be a sensible approach, but keep in mind that the government must pay interest to its
creditors, and the borrowed money must be repaid at some point.
Issuing debt has historically offered an economic boost to various countries, although greater economic
development has not been very helpful in directly reducing long-term government debt.
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Buying Back Government
Bonds
02 When the economy and individuals are struggling, such as during periods of high unemployment, governments can try to
revive the economy by purchasing the bonds they issued.
For example, the Federal Reserve of the United States has used quantitative easing twice since November 2008. This
entailed purchasing significant amounts of government bonds and other financial securities in order to stimulate economic
growth and aid recovery from the 2007-2008 financial crisis.23
In the short term, many financial analysts advocate quantitative easing. Buying one's own debt, on the other hand, has not
proven to be any more effective than borrowing one's way to riches by issuing bonds.

14. 03
Manipulation of Interest
Rate
Maintaining low interest rates is another approach for governments to promote the economy, create tax revenue,
and, eventually, reduce the national debt.
Lower interest rates make borrowing money easier for people and corporations. As a result, those borrowers spend
their money on products and services, creating jobs and increasing tax revenues.
During times of economic crisis, the United States, the European Union (EU), the United Kingdom, and other
countries have maintained low-interest rates. It has had some degree of success.
Having said that, maintaining interest rates at or near zero for extended periods of time has not proven to be a cure
for debt-ridden nations.
04
Increasing Taxes
Governments frequently raise taxes to fund spending and debt repayment. Federal, state, and, in some situations,
municipal income and company taxes are all possible.
Other tax examples include the alternative minimum tax, sin taxes (on alcoholic and cigarette products), corporate
tax, estate tax, FICA, and property taxes.
Despite the fact that tax increases are typical, most countries have large and growing debts. It is very likely that the
rising debt levels are primarily the result of a failure to curb spending.
Increased revenues have minimal impact on a country's overall debt level when cash flows increase but spending
continues to rise.
5 government's strategies to reduce
National Debt

15. 05 Debt Bailouts
Forgiveness of Debts
Getting wealthy nations to forgive your debts or give you
money is a method that has been used before. In fact, the
United States has been bailing out other countries since
1792. Unfortunately, this technique is not without flaws.
Many African countries have benefited from debt
cancellation. For example, debt forgiveness drastically
lowered Ghana's debt burden in the late 1980s. The country
was once again deeply in debt in 2011. Greece, which
received billions of dollars in bailout monies in 2010-2011,
did not fare any better following the initial rounds of cash
injections
5 Government's strategies to reduce
National Debt