...Our country has Budget deficits and government debt have significantly increased in many countries around the globe over the past 20 years, and almost all these countries are now faced with the challenge of building back up, their economy. The current problem of budget deficits and public debt has come about mainly because the growth in government spending has exceeded the growth of goods and services. “While the average ratio of tax revenue to GDP in industrial countries increased from 28 percent in 1960 to 44 percent in 1994, the corresponding ratio for government expenditures rose from 28 percent to 50 percent.” (McDermott & Wescott, 1997). Given the high levels to which taxes have risen and the danger of stunting growth by raising taxes further, to say nothing of the political consequences of trying to do so, it is reasonable to say that reducing government spending offers the best means, if not the only means, of eliminating these fiscal monetary inequalities. Reducing government spending is not as easy as it may sound. According to traditional Keynesian theory, if you manage to reduce the government deficit, you run into another problem: the country might slide into recession. Why is this? Budget deficits, despite their unfavorable reputation, are not always bad. They at sometimes can indicate the government is buying goods and services, is paying wages to its employees, and is making transfers of money to its needy citizens. In doing so, it is putting money into...
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...POSC 111 Internet Assignment 6 The U.S. national budget and debt levels are issues that have divided Americans along partisan lines for many years. As the debt and deficit continue to increase, those on either side get more entrenched in their position. The current total national debt is $18,150,540,421,128. This includes the money that the government owes the American people, other nations and itself. (concordcoalition.org) National debt is measured as it relates to the Gross Domestic Product or GDP and the percentage of debt to GDP. This means that we compare what we owe as a country to what we produce. This indicates our country’s ability to pay back our debt. The highest our debt to GDP has ever been was in 1946, just after WWII, and it was 106.1%. According to current indicators it is projected to reach that level again in 2031 if we don’t change how we do business as a nation (concordcoalition.org). Our national budget is divided into several categories of spending. The three highest spending categories for the current year are Healthcare at $921 billion, Social Security at $851 billion and Defense at $605 billion (concordcoalition.org). This is a little surprising to me. I would have figured defense spending to be a little higher. When completing the Concord Coalition’s Federal Budget Challenge I ended up with a deficit of 6.6 trillion dollars. This was a reduction of two trillion dollars. The categories of spending that I chose were health, social...
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...Indonesian Domestic & Foreign Debt Since the Old Order (Orde lama), Indonesia has used foreign borrowing to finance development. Indonesia utilized foreign debt during the first period of 1966 . In the early 1960’s as a new independent country, government needs fund to finance country’s development. While only limited domestic fund source available with undeveloped domestic capital market, to fill domestic saving–investment gap external fund was the only available source. It is defined the primary goal of external fund was to accelerate urgently needed economic growth, where the external debt would turn into government’s spending which in turn would generate investment and to accelerate the growth. As economy developed, it was expected that the government could earn sufficient foreign exchange to service foreign obligations, to accelerate the development process, and gradually to lessen the country’s dependence on external resources. And still in the 1990’s, external public debt actually was not solely addressed to fill the financing gap of the government but rather to fill up budget deficit in order to foster the economic growth rapidly. The huge growing number of external debt used however has not always significantly contributed to the growth expected. It’s true that the economic growth used to reach the level of 7% in the middle of 1990’s. But on the other hand, the debt service also increased significantly. The debt burden indicators proved...
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...Stan Grant, CNN Int'l. Anchor, "Prism":Greek government workers took to the streets Wednesday protesting wage cuts and other measures intended to fix the country's burgeoning debt crisis. Journalist Nicole Itano joins me now on the phone from Athens with the latest. Nicole, let's look at what the grievances are here. Obviously, there's going to have to be some very tough measures in Greece to deal with this debt crisis, but concern that people are going to be adversely affected by this. Nicole Itano, Journalist:I think that is the main complaint of the people who are out on the streets today. They feel that the austerity measures are going to fall disproportionately on poorer people, on working people who already pay a very high percentage of Greek... Greece's tax burden. So what they are saying is that it shouldn't be them, it shouldn't be the workers, it shouldn't be the poorer people who pay. Instead, the rallying cry that I heard again and again was it's the bankers; it's the rich who got us into this problem in the first place, and it's them who should...
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...Causes of Euro debt crisis 1. Profligacy of the European Government & Unsustainable Fiscal Policy Countries including Greece, Portugal, Ireland, Spain and Italy in Europe are now paying a heavy price on their profligate way of spending, as reflected by the Euro debt crisis starting from late 2009. Fiscal policy is the use of government expenses and taxation income so as to influence the economy, while the average fiscal deficits had grown from 0.6% in 2007 to 7% at the beginning of the debt crisis across the Europe (Économistes Atterrés, 2010). Therefore, more and more debts were being issued by the above governments so as to support their national expenses, leading to an excessive rise in government debt levels. For instance, the average government debts per GDP had raised from 66% to 84% in the same period (Krugman, 2012).Basically, government debt is the money owed by the central government to the debt holders. As a result, with a high level of the debt-to-GDP ratio may imply that the country is less likely to repay the debt holders but higher chance to default on its debt obligations. Greece, contributing about 3.3% of the annual GDP towards the European Union (Central Intelligence Agency, 2012), with a 165.3 % of debt-to GDP ratio in 2011, was responsible for the outbreak of the Euro debt crisis. Historically, Greece Government’s Debt to GDP ratio was already at a relatively high level across Europe (McAuley, 2011)(Graph 1). Following by the adoption of the...
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...Topic: PIIGS (European debt crisis) 吳宇綸D0131292 劉昱顯D0131156 王謙 周雋彥D0125599 Contents 1. Introduction 2. Overview of the European sovereign debt problem 3. Relief measures of the European sovereign debt crisis 4. European debt crisis 5. Conclusion 6. References I. Introduction The PIIGS is a group that composed of five countries that have some commonality in location and economic environments. In this case, PIIGS includes Portugal, Italy, Ireland, Greece and Spain. The countries which be mentioned are all part of European Union members and have been noted for having weak economics and bad situation of financial problems. In 2008, economic crisis came to all over the world, during the worldwide economic crisis, Portugal, Italy, Ireland, Greece and Spain began to come out the grave and serious concern in the European Union refer to the enormous amount of sovereign debt that they were carrying. The problem with the PIIGS is that speculators dropped, compounding their debt issues and the situation might be much more worse. Many European Union members were also unwilling to rescue these struggling nations although when it became very clear that assistance would be needed. The sovereign debt crisis sparked a number of conversations about reforming financial policy in the European Union to prevent similar problems in the future. The members of PIIGS felt displeasure at the negative allusions and some have...
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...This essay will talk about what is currently going in Europe with the Eurozone sovereign debt crisis and the fiscal state the European Union is in, it is important and interesting because it is still current affairs and there are various factors and decisions that have helped the path that the crisis is going in, this essay will look at the crisis but on the implications and problems that European union face as well as what they have faced already and whether the European Central Bank are doing enough to improve the situation and what their plans are for the future. A sovereign bond serves as a floor for interest rates banks charged for loans and for the pricing of other financial contracts and securities. The global financial crisis led to the deterioration of government budgets and finances as nations utilized public expenditures to provide stability and stimulus. The Eurozone suffered because of heavy borrowing practices, property pebbles and living above their means. The Eurozone debt crisis started because Greece who had borrowed heavily in international capital markets over the past decade were turned against by investors this is because Greece in 2009 admitted that they had double the amount of debt that was allowed in the Eurozone limit. Ratings agencies started to downgrade Greek bank and government debt, and there was fear of Greece defaulting and not being able to pay back its debts but the Greek Prime Minister George Papandreou insisted otherwise however this was not...
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...UCD CENTRE FOR ECONOMIC RESEARCH WORKING PAPER SERIES 2011 Ireland’s Sovereign Debt Crisis Karl Whelan, University College Dublin WP11/09 May 2011 UCD SCHOOL OF ECONOMICS UNIVERSITY COLLEGE DUBLIN BELFIELD DUBLIN 4 Ireland’s Sovereign Debt Crisis Karl Whelan University College Dublin 1 May 2011 1 This paper was presented at a workshop on "Life in the Eurozone With or Without Sovereign Default?" that took place at the European University Institute in Florence on April 14, 2011. 1 1. Introduction Among the countries currently experiencing sovereign debt crises, Ireland’s case is perhaps the most dramatic. As recently as 2007, Ireland was seen by many as top of the European class in its economic achievements. Ireland had combined a long period of high economic growth and low unemployment with budget surpluses. The country appeared to be well placed to cope with any economic slowdown as it had a gross debtGDP ratio in 2007 of 25% and a sovereign wealth fund worth about €5000 a head. Fast forward four years and Ireland is shut out of sovereign debt markets and in an EUIMF adjustment programme. Its debt-GDP ratio has soared over 100% and the sovereign wealth fund is effectively gone. In this short paper, I provide a brief review of how this rapid change came about and discuss potential future developments in relation to Ireland’s sovereign debt situation. 2. The Rise and Fall of the Celtic Tiger It is now well known that Ireland’s famed “Celtic Tiger” ended...
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...default” lurking around the corner. Sovereign default refers to a situation when government of particular country is unable to repay its debts. This situation of default payments by governments lead to European crisis. With onslaught of the recession and subsequent introduction of various financial stimulus packages, the government expenditure like public job creation, pensions, social benefits etc ..on various countries took on gargantuan proportions to support these packages. To support these packages government was forced to borrow heavily consequently generating high fiscal deficicts.Most countries had manageable fiscal deficit, the government of PIGS nations mopped up a huge debt bill. The state of affairs in Greece which was epicenter of the sovereign default malaise is shamboic as country was known to live beyond its means. Debt Skelton of PIGS [pic] Role over risk in EURO ZONE It is one element played a role in the crisis is “roll-over risk”. Countries involved are exposed to a fiscal crisis (the “bad equilibrium”) to the extent that they are forced to rely on the market to roll-over their debt. Thus, much depends on the amount of public debt coming to maturity in the next months. This in turn depends on the maturity structure of the public debt. If public debt mainly has a long-term maturity, then the amount of debt to be rolled-over in a certain time interval is small and the burden of a high interest...
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...lasted for over 30 years, it left the world in wonder – how is it possible to disclose such a thing for so long, and how is it possible that such action remains unpunished? The problems caused by the global recession were compounded by revelations that national statistics had been altered in order to cover the fact that Greece, in terms of debt levels, exceeded limits set down by the EU. The country's debt is already well over 100 percent of GDP and is still rising. According to euro zone rules, total government debt should not exceed 60 percent of GDP. The country's budget deficit in 2009 was almost 13 percent of GDP, more than four times the 3 percent limit allowed in the euro zone. But beyond the debt there is more deficit. What Greeks did when they got all this borrowed money, they gave away incredible sums to citizens, raised the wages to such an extent that it created a serious budget deficit. Inefficient Government? Corrupted mentality? Call it as you like, but it caused consequences that citizens, and not only them but the entire Europe, will have to bare for many years from now. Once the truth started to unveil, the new Government started to discover more omissions and misreports. So the banks came into the picture in the form of loan offerings to these customers and other such offerings like personal loans and credit card loans. When the news of recession hit Greece, the real...
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...consulting opinion in regards to the cost of capital, debt, and equity. We have reviewed and analyzed the industry and market data provided as well as heavily researched your industry to understand trends, risks, growth potential, etc. The attached report is a detailed summary of problems and decisions faced based on the method of calculating the cost of capital, cost of equity, and the cost of debt. We have focused our efforts to specifically outline the correct risk free rate, risk premium, hurdle rate, and beta to be used in those calculations. In addition to analysis of the problems, we have also outlined recommendations for the future. These recommendations include a 8.72% risk free rate, 7.92% risk premium, and 1.135 beta for the Marriot Corporate as a whole as well as individual risk free rate, risk premium, and beta for each division. Additional in depth analysis is provided within the report. Also included are detailed explanations for the recommendations referenced above. We look forward to witnessing your continued growth and wish you success in the future! Sincerely, Group 9 Problem Statement Marriott Corporation operates three major lines of business that include lodging, contract services, and restaurants. In order to implement the corporate financial strategy, Marriott needs to calculate and understand where each division currently stands in regards to cost of capital, cost of equity, and cost of debt. Risk free rates, risk premiums, and...
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...and strong growth. What is Fiscal Policy? When the supply of money is economic constant, government expenditures must be financed by either taxes or borrowing. Fiscal policy involves the use of the government’s spending, taxing and borrowing policies. The government’s budget deficit is used to evaluate the direction of fiscal policy. When the government increases its spending and/or reduces taxes, this will shift the government budget toward a deficit. If the government runs a deficit, it will have to borrow funds to cover the excess of its spending relative to revenue. Larger budget deficits and increased borrowing are indicative of expansionary fiscal policy. In contrast, if the government reduces its spending and/or increases taxes, this would shift the budget toward a surplus. The budget surplus would reduce the government’s outstanding debt. Shifts toward budget surpluses and less borrowing are indicative of restrictive fiscal policy. It is important to note that a budget deficit is different from the national debt. A deficit occurs when government spending exceeds revenue over a year, quarter or month. A deficit will increase the size of the national debt. Put another way, the deficit adds to the outstanding stock of IOUs issued by the U.S. Government and not yet repaid. Conversely, a budget surplus will reduce the size of the national debt. A surplus permits the government to pay off some of the holders of the federal government’s IOUs. These holders are the bondholders...
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...some are inherently much more risky than others, and others are just not fit for purpose if the objective is to create a safe, predictable source of income that also diversifies a portfolio’s equity risk. FIXED INTEREST/BONDS – A DEFINITION Broadly, a bond can be defined as any debt instrument issued by a government/quasi-government entity or company/special purpose vehicle. In effect a bond is a commoditised, tradable loan where an investor provides capital in exchange for a legally enforceable promise by the issuer to pay the investor regular interest over a fixed period of time and principal at maturity. Naturally, the ability to enforce payment will be a function of the solvency of the borrower. Therefore, assessing credit quality is vital in fixed interest investing. High quality issuers generally fund at lower yields whereas higher yields are paid by issuers of lower credit quality due to a higher risk of default. The tradability of fixed interest securities means that their prices fluctuate in concert with movements in interest rates, whilst providing liquidity for investors needing to access their funds or wanting to change investment strategy. An Example An investor who holds a government bond with a face value of $10,000, paying a coupon of 6% and a maturity of five years,...
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...2008 has led to the European sovereign debt crisis. The purpose of this essay is to analyse the effectiveness of several economic policies which can be used to solve this crisis. The essay looks at the effectiveness of fiscal austerity which has already been implemented by some European countries, then look at whether there is room for monetary policy, lastly looks at whether there is room for further policy recommendations. The European sovereign debt crisis refers to the collapse of several financial institutions in certain European countries which form part of the European Union, high government debt in these European countries as well as rapidly increasing bond yield spreads in government securities has caused a sovereign debt crisis. This on-going financial crisis, which began in 2008, has made it very difficult or even impossible for some country’s governments in Europe to pay back their debt without the assistance of third parties which then further increases their debt (Times, 2012). Economists have thought long and hard about ways in which they can improve and in essence solve the European debt crisis. One way of doing so is through fiscal policy, which refers to government spending and taxation. A fiscal consolidation, which is a term typically used to discuss government economic policy, refers to a policy which is implemented with the intention of decreasing government deficits and decreasing the accumulation of government debt (W.Lee, 2012). According to the economist...
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...MBA 501 Final Exam (Exam 4) 1. Differentiate between the Federal deficit and the Federal debt. The Federal deficit is an annual concept referring to the shortfall between Federal revenues and expenditures in one year’s budget. The Federal debt is the accumulation of borrowing which results from the series of deficits minus any surpluses. 2. Adam Smith once wrote: “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.” Evaluate in terms of the national debt. This is an example of the fallacy of composition. What is true for the individual is not necessarily true for governments when it comes to borrowing. Government can refinance its debt. The government, unlike individuals, also has the power to tax. 3. Crowding out can weaken the effect of an expansionary fiscal deficit. Explain. If public borrowing to finance the public deficit crowds out private borrowing and spending that would have increased aggregate demand, then the effect of government spending has been lessened. In other words, some of that spending would have taken place anyway as a result of private borrowing which has been crowded out. 4. What are the two reasons that people want to hold money? In other words, what are the two types of demand for money? People want to hold money for transactions purposes and as a form of liquid assets. Thus, economists talk about a transactions demand for money and an asset demand for money. ...
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