us debt crisis and its impact on global

7/29/2019 Us Debt Crisis and Its Impact on Global

1/19

US DEBT CRISIS AND ITS IMPACT

ON GLOBAL ECONOMY
http://blogs.reuters.com/india-expertzone/files/2011/08/dollar2341.jpg


2/19

DEBT CRISIS

A debt crisis deals with countries and their

ability to repay borrowed funds, it deals with

nation economies, international loans and

national budgeting.

A debt crisis occurs whenever an economic

entity cannot service or repay its debt. Often

debt crises occur in a developing country witha weak economic infrastructure.


3/19

Debt Ceiling

The amount of money the United States

federal government is allowed to borrow by

congress.

It applies to debt owed to international and

domestic investors in US Treasury bonds,

funding for benefit schemes such as social

security and medicine, civil servants pay andnumerous other function of government.


4/19

Cont.

The current limit is $14.294 trillion, meaning

the US government borrows about 40 cents

for every dollar it spends.


5/19

U.S Debt Crisis

A financial crisis in 2011 that started as a

debate in the United States Congress about

increasing the debt ceiling.

Stock markets plunged and trader panicked,

fearing the global economy would suffer a

double-dip recession.

The rating of US bonds is now lower than

those of the UK, Germany, France or Canada.


6/19

CONT.

This is the first time Americas credit rating has

been downgraded since it received an AAA

rating from Moodys in 1917, and S&Ps in

1941.

On August 5th, Standard & Poors cut the long-

term credit rating for the worlds largest

economy by one notch to AA+.


7/19
http://en.wikipedia.org/wiki/File:USDebt.png


8/19

Credit Rating

The credit rating is a financial indicator to

potential investors of debt securities such as

bonds.

These are assigned by credit rating agencies

such as Moodys, Standard & Poors, and Fitch

Rating to have letter designations (such as

AAA, B, CC) which represents the quality of abond.


9/19

Moody's assigns bond credit ratings ofAaa,

Aa, A, Baa, Ba, B, Caa, Ca, C, with WR and NR

as withdrawn and not rated.

Standard & Poor's and Fitch assign bond

credit ratings of AAA, AA, A, BBB, BB, B, CCC,

CC, C, D.
http://en.wikipedia.org/wiki/Moody's_AAA_Bondhttp://en.wikipedia.org/wiki/Moody's_AAA_Bond


10/19

US debt from 1940 to 2010. Red lines indicate

the Debt Held by the Public (net public debt)

and black lines indicate the Total Public DebtOutstanding (gross public debt). The

difference between the two is the debt that is

held by the federal government itself. The

second panel shows the two debt figures as a

percentage of US GDP (dollar value of US

economic production for that year). The top

panel is deflated so every year is in 2010dollars.


11/19

Impact on U.S Economy

As much as 2.5 trillion U.S. dollars has been

wiped off markets as investors now fear lower

growth due to the U.S. debt downgrade.

Investors are also losing confidence in the long-term prospects for U.S. economic recovery.

U.S. economy slowed to an annual growth rate of

1.3 percent during the second quarter this year,far short of the 1.7 percent market expectation.


12/19

Personal income rose by a seasonally-adjusted

0.1 percent in June, the smallest increase

since last November. With more than 14 million Americans without

jobs, and many with little prospect of work in

the months to come, it is not surprising thatthe U.S. economy is hardly growing.

Spending by consumers dropped by 0.2

percent, marking the first decline in nearlytwo years.


13/19

Impact on China Economy

China is the largest single holder of U.S.

treasuries, with $868.4 billion invested at the

end of August last year.

The U.S. credit downgrade has roused

concerns among investors, especially those in

China.

The downgrade of America's credit rating will

cause losses to China's dollar assets.


14/19

some experts believe this is a perfect

opportunity for China to diversify its

investments, while limiting its dependence on

U.S. dollars.


15/19

Impact On Indian Economy

The U.S. debt crisis is bound to produce someof Indias economic impact, particularly inIndia to the United States in the export of IT

services outsourcing industry would welcometo negative effects.

There may be more foreign institutionalinvestors (FII) funds into the Indian marketand further promote the appreciation ofrupee.


16/19

Impact on Japanese economy

The U.S. economic deterioration sparked the

U.S. government to implement further

monetary easing speculation, selling dollars to

buy yen, the situation is likely to continue, sothe government is trying to pull the yen

soared.

Yen-dollar exchange rate had risen to 76.72 to1.


17/19

Impact on UK Economy

The British approach does appear to be

working, with the benefit of low interest rates

and an AAA credit rating.

The US has yet to really engage with its debt

problem, as the downgrade shows.


18/19

REMEDIES

Dollar-for-dollar deal raise the debt ceiling

to match corresponding spending cuts.

More of the budget cuts in the first two years.

No tax increases tax reform could be

considered

Opposed to any major cuts to Social Security,

Medicare, or Medicaid.


19/19

us debt crisis and its impact on global

Documents