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WELCOME


SHOULD U.S. RAISE ITS DEBT CEILING?


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 Rating Why US has been able to raise so much money


THE DOLLAR • Largest industrial base and surplus of dollar backed by Gold post 2nd world war. •1971: The Dollar was fixed as Reserve Currency. • 1973 oil crisis: Increase in US treasury bills held by central governments •As a result demand for Dollar increased in the world arena.


WHO IS HOLDING THIS DEBT


DEBT CEILING


DEBT CEILING

• Limits the amount of public debt that can be outstanding. • Prevents the U.S. Treasury from issuing new debt once the limit has been reached.


IMPORTANCE OF DEBT CEILING


IMPORTANCE OF DEBIT CEILING

• Provides Congress with the strings to control the federal purse • A form of fiscal accountability • Compels Congress and the President to check their debt borrowings


But you can always increase it


The REASONS From a forecast annual surpluses of $850 billion for 2009–2012 to deficit reality of $1,215 billion


How serious is this issue of Debt ceiling


Default in payment


Default in payment

Employment


Default in payment

Inflation

Employment


Default in payment

Inflation

Employment

Exchange Rate


GDP Default in payment

Inflation

Employment

Exchange Rate


GDP Employment

Default in payment National Income

Inflation

Exchange Rate


GDP Employment

Default in payment National Income

Inflation

Stock Market

Exchange Rate


Default in payment

GDP

National Income

Inflation Dollar Value

Employment

Stock Market

Exchange Rate


GDP Default in payment Interest Rates

National Income

Inflation Dollar Value

Employment

Stock Market

Exchange Rate


IF THEY DON’T RAISE THE DEBT CEILING


• Decrease in Expenses • Effect on Stock Market • Sky High mortgage and Interest rate • Treasury Bond Collapse


BUT WHAT IF THEY RAISE THE DEBT CEILING


Dollar weakens


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.


US Debt Crisis  
US Debt Crisis  

US Debt Crisis

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