The global debt crisis


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The global debt crisis situation in 2012.

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The global debt crisis

  1. 1. Made by: Sneha Malhotra, 4115
  2. 2. 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 Congress.
  3. 3. FAILURE OF RAISING DEBT LIMIT? 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 government spending would have to be decreased, or debt would have to be paid later than promised, also known as a default.
  5. 5.  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.
  6. 6. SOME CAUSES OF THE DEBT Wars fought in Iraq, Kuwait, Afghanistan have cost approx. $1.3 trillion. Healthcare and social security benefits for the people amount to $272 billion. President Barack Obama’s policies to stabilize the economy have added $1.7 trillion. Two recessions and tax cuts made by GeorgeW Bush have added $6.3 trillion.
  7. 7. THE DEBATE:  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 the deadline.
  8. 8.  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. BUDGET CONTROL ACT OF 2011
  9. 9. 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 presidency.
  10. 10.  After the S&P’s ratings, it is now terribly clear that the American economy is terribly sick.  IT IS FAILINGTO CREATE JOBS AND MIGHT DOUBLE-DIP BACK INTO RECESSION.
  11. 11. GLOBAL EFFECT: 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 securities.
  12. 12. 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 DEBT CRISIS
  13. 13. THE INDIAN SITUATION: QUOTES “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
  14. 14. BUT…  Despite these assurances, the investors lost Rs 1 lakh crore as Sensex plunges to below 1,33,000 mark.
  15. 15. 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 value.  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.
  16. 16. 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 OUR DEBTORS.”