US Debt Crisis???

Is the Uncle Sam Going Broke

Basic Definitions Fiscal deficitDebtUS Budget PolicyUS Debt PolicyUS Debt Ceiling

Fiscal Deficit

When a Government’s Total Expenditure exceeds its generated revenues it is known as a fiscal deficit

Revenues

Expenditure

Debt Debt differs from deficit as it is the

accumulation of yearly deficits.

Historic Debt Chart 1930-2011

US Budget PolicyAs all other major economies worldwide the US Budget is

passed for the coming year and an estimated Deficit is calculated in it.

The last part of this year’s budget was passed in April and it estimated its revenues at 2.17 trillion$ as against an expenditure of 3.82 trillion$ i.e. a deficit of 1.65 trillion$

P.S. : The whole Indian Economy is less than 2 trillion$

US Debt PolicyWhenever there is a budget deficit the US

government covers this shortfall by its Treasury, to

borrow this shortfall by issue of bonds and other debt instruments.

This is pretty normal in US and there are always more than enough people to lend them as they are seen as a very safe investment.( remember they were rated AAA)

These bonds can be held by banks, Corporations and even by foreign countries

US Debt Ceiling Post World War I, The Congress put a cap on

US Borrowings as “ Debt Ceilings”. The Government can borrow money as long as it is below this debt Ceiling.

US Congress can increase this ceiling and it has been almost every other year since its inception

On April 15, 2011 this ceiling stood at 14.294 trillion $

US Debt Crisis TimelineEarly 2011, S&P and Moors Credit Rating Agencies warns

US of a possible DowngradeApril, 2011 US Congress Passes the Final Part of Annual

Budget with a deficit of 1.65 Trillion$May, 2011 US Debt ceiling of 14.29 Trillion$ is reached June-July, 2011 The house of representatives (Republican

Dominated) is unwilling to increase the Debt ceiling without cuts in expenditure

July 2011, US face a Possible default with a deficit of 130 billion$ on Aug 2, 2011

July 31, 2011 US avoid default through an agreement Aug 6, 2011 Standard & Poors downgrades US rating from

AAA to AA+

Reasons for Debt Crisis

US per Capita Income Expenditure Chart (1960-2015*)

Unemployment in US

The Unemployment in US is at an all time high of 24%The government has to pay them for Unemployment and medical benefits escalating the overall Expense

Accumulated Large Debt

National Debt=14,000,000,000

Debt= Entire GDP

Possible SolutionsMake More Money

Increase Taxes

Cutting Expenses

The DownsideMore Money

Lesser Value of Money

Inflation

Increased taxes

Job losses

Increased Expense on Unemployment Benefits

Increased Deficit

Cutting Expenses

Slower Growth

Prolonged recovery

Increased Interest on existing debts

US Default

Possible FutureInflation

Slow Growth

Stagflation/Double-Dip Recession

The Deal….that saved the day

The US avoided the default by making a deal with the opposing Republican members in the House of Representatives as it was granted to raised the debt ceiling by 900 billion$ provided they cut back on expenses of 1 trillion$ in next decade.

What does it mean to us? Is the Possible Economic Future that

catastrophic

BOTH

YES and NO

YESIF

If US doesn’t cut back on its War ExpensesIf US doesn’t increase Corporate TaxesIf US thinks beyond Oil and Weapons as

income SourcesIf US increases interest rates on its bonds

NOUS Still has the Liquidity to last the rough

timesUS is still the favored destination for

investorsUS still is the strongest country in the worldUS has thwarted bigger crisis before

and above all else

Most of us doesn’t want it to happen

Thank You!!