...“America is on a dangerous budget path. Current spending and debt are dangerously high, and future spending and debt are on track to rise even higher in large part due to the increasing entitlement spending” (Boccia, 2013). As recent as February of 2014, congress has decided to yet again raise the debt ceiling for America, this time capping the limit at $17.2 trillion dollars. This marks the fifth effective increase in the debt ceiling since August 1, 2011, when it was $14.3 trillion (Sahadi, 2014). If America continues to raise this limit, how is the debt crisis that our nation is currently experiencing going to affect our businesses; and more importantly, us as individuals in future years? The issues that need to be addressed to see where the root of this problem starts, and where the solution can be found starts with looking at the events other countries have or are currently facing, and how they have come up with strategies to solve their debt crisis. From there we need to focus on the economic trends that we are currently in, and the negative and positive effects that they are having. The effects that will be discussed are how creditors view America, how it affects businesses through prolonged drag and economic growth, and how it will affect the individual with inflation and increase in taxes. As this paper addresses these issues, it will reveal the scary truth of the tolls that will be put on America if they continue with their dangerous budget path. “The warning bells...
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...Debt Ceiling Crisis This essay is intended to provide a breakdown of the debate concerning the debt ceiling. As the house debates, the debts increases and the issue continues to become complicated. The nation is in a crisis along with complex issues. President Obama along with the rest of the house is at odds deciding if the debt ceiling should be raised. The debate on Capitol Hill has been going on for few months now, as the August 2, deadline nears. The democratic and Republican Party both agree it is imperative that the ceiling needs to be raised but the issues surrounding the debt separates congress. The current debt ceiling stands at 14 trillion dollars and continues to grow. This debate has divided the nation’s citizens as well. It is not just a situation of more money to spend, if the ceiling is not raised the money would have to come from social security and Medicare. The Democratic Party supports raising the debt ceiling. The democrats know that if the ceiling is not passed there would be a dramatic downward spiral in the nation’s economy. This act would cut social security and Medicare. The democrats acknowledge the monies borrowed must be repaid but not at the expense of taking away from the elderly. “Understand - raising the debt ceiling does not allow Congress to spend more money. It simply gives our country the ability to pay the bills that Congress has already racked up. In the past, raising the debt ceiling was routine. Since the 1950s, Congress has always...
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...HOW THE GLOBAL DEBT CRISIS COULD AFECT YOU Reasons for selecting the article The reasons for choosing the article are that firstly, it stated that aggregates for economic consequences, GDP, recession and unemployment have greatly affected Singapore economy. The article also focused on the nation behaviour of the declining economy for US and Greece due to finance crisis which in turn affect other nations, in this case, Singapore. In fact, the article briefly explained how aggregates like national income and output have affected US and Greece economy, which in turn affected Singapore. It will be further discussed whether this mentioned global crisis will affect Singapore inflation, causing a rise in unemployment rate and the slowing of GDP growth for emerging markets. Summary of the article The article comments on how two of Singapore’s trading partners, mainly US and Greece, are hurting themselves with their debt problems and the impact of their problems on Singapore economy. It briefly describes what US debt ceiling is and the heavy borrowing of Greek government which has greatly contributed to the global debt crisis. It also explains on US debt problem and other aftershocks if the debt ceiling is not rise. Moreover, it explains the debts that Greece had incurred and what will happen if Greece defaults on its debts. Lastly, it further highlighted that the Singapore economy is affected by the two countries’ debt problems. Identify and discuss on the economics...
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...------------------------------------------------- The US Fiscal Outlook & China’s Role in the US Treasury Market ------------------------------------------------- -Fixed income project key words FISCAL, DEBT CEILING, TREASURY, THE FED, CHINA Written by Gong Li 1155019071 Jiang Peng 1155038183 Yang Mengdi 1155020855 Zhang Yiwen 1155010794 Zheng Qianfei 1155038175 Written by Gong Li 1155019071 Jiang Peng 1155038183 Yang Mengdi 1155020855 Zhang Yiwen 1155010794 Zheng Qianfei 1155038175 CONTENT Executive Summary 1 1, The US Fiscal Outlook 3 -Recent and historical fiscal outlook 3 -The US debt ceiling and recent crises 4 -Financial cliff (2013) and its impacts to the US economy 5 -The US fiscal future 6 2, Fiscal Situation and Treasury Market 9 -The role of US department of the treasury 9 -The role of the Federal Reserve 9 -The US treasury market 10 -The Fed, the interest rates, the QE and the taper 12 -The prediction of the future interest rate 13 -Summary 14 3, China’s involvement in the US Treasury market 15 -China’s Ownership of US Treasury Securities 15 -Reasons of China’s preference for the US Treasuries 16 -The Symbiosis between China and the US in Terms of US Public Debt Holdings 18 -Our Suggestion on China’s Future Position in the US Treasury Market 20 References 22 Executive Summary The state and local governments continue to face fiscal challenges in the short- to medium-term term. According to the Government Accountability...
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...European debt crisis and its impact on worldwide economy Shanika Mitchell-Gregg April 30, 2012 Dr. Tzu-Man Huang BUS 5200 Strategic Finance for Executives EMBA, 2011-12 (Stockton Cohort #7) “The European Union only takes action after the facts. They only address a situation when it has already become a problem.” Zdeneil Kudrna, political economist The European debt crisis was brought on by several Eurozone countries running large budget deficits and borrowing money from central European banks. Out of 27 member states, 17 of those countries use the euro as their currency. The larger countries involved were; Italy (the worst effected), Germany, Spain, Portugal, Greece, Switzerland, Britain and Ireland. The European economic debt crisis has resulted from a combination of complex factors including; the interconnection in the global financial system, that if one nation defaults on its sovereign debt or enters into recession putting some of the external private debt at risk. Easy credit conditions, during the 2002–2008 were a period ones were encouraged of high-risk lending and borrowing practices. International trade imbalances or international interconnection of debt protection, institutions entered into contracts called credit default swaps (CDS) that result in payment should default occur on a particular debt instrument (including government issued bonds). But, since multiple CDS's can be purchased on the same security, it is unclear what exposure each country's...
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...GE273 Micro Economics Project Part 2 and 3: The Debt Ceiling I would like to start by saying thank you that you would take the time to truly listen to your constituents and hear our concerns and ideas about the economy that we live in everyday. The debt ceiling is something that we must take very seriously. It seems that we are constantly raising our credit limit in order to justify our current spending habits. But is that a good idea? If my credit card company keeps raising my credit limit in order to allow me to continue spending more money, but I never pay down my balance, am I ever truly getting out of debt? During a time when I can financially afford to take on a high balance, raising the limit helps me attain the things that I want and/or need during that time. However, raising the limit is not a permanent solution. At a certain point, I may reach a debt level that I can no longer afford to pay back. That is becoming my concern with the current debt crisis. I fear that we are continuing to raise our credit limit but are not adequately paying back the debt we are accumulating. I feel what is needed for our country is the same thing that any normal family would need to do in order to address overspending; address current overspending habits and begin to implement a better savings strategy. These may be the most effective steps to take in order to truly attack the raising debt problem that may plague this country for generations to come. Life in America is...
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...associated with a rising incidence of default or restructuring of public and private debts. Sometimes the debt restructuring is more subtle and takes the form of “financial repression”. Consistent negative real interest rates are equivalent to a tax on bond holders and, more generally, savers. In the heavily regulated financial markets of the Bretton Woods system, a variety of financial domestic and international restrictions facilitated a sharp and rapid reduction or “liquidation” of public debt from the late 1940s to the 1970s. The restrictions or regulatory measures of that era had their origins in what would now come under the heading of “macroprudential” concerns in the wake of the severe banking crises that swept many countries in the early 1930s. The surge in public debts that followed during the Great Depression and through World War II only made the case for stable and low interest rates and directed credit more compelling to policymakers. The resurgence of financial repression in the wake of the 2007-2009 financial crises alongside the surge in public debts in advanced economies is documented here. This process of financial “de-globalisation” may have only just begun. * Research associate at the National Bureau of Economic Research, Research Fellow at the Centre for Economic Policy Research. NB: This paper draws on Reinhart and Sbrancia (2011), Reinhart, Kirkegaard, and Sbrancia (2011) and the chapter by Carmen M. Reinhart and Dani Rodrik from “Rethinking central...
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...How has the global economic environment changed in the last year? Following two years of weak and uneven recovery from the global financial crisis, the world economy is teetering on the brink of another major downturn. Output growth has already slowed considerably during 2011, especially in the developed countries. The baseline forecast foresees continued a pale growth during 2012 and 2013. Such growth is far from sufficient to deal with the continued jobs crises in most developed economies and will drag down income growth in developing countries. In this paper I will be speaking about the global economy, but first, I will elaborate and concentrate on the strongest economy in the world, the US. In the past year, the most important issue in the United States was employment. All of this year we have seen the employment rate change from 8.1% 8.3% which is a very narrow range, but still means that 12.8 million people are out of jobs, which is extremely bad, but on the other hand, if you wanted to compare it to the rate in 2008, where the economy was falling apart, things seem optimistic. It’s not the government isn’t creating jobs, because it is. The problem is that it’s not creating enough jobs to soak up all the people who were laid off. On average, the country has been adding 150,000 each month, which is good, but not fast enough for people who have been laid of for a while to return to the job market. Another problem is the housing market. In comparison...
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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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...SUKRITI JAIN Will EU survive the second decade of the new millennium? CONTENTS 1. ORIGIN........................................................................................................................................... 6 1.1 1.2 2. 3. 4. Perceived benefits ................................................................................................................... 7 Rules governing union (Stability and Growth Pact and Maastricht Treaty) ........................... 7 Faultlines ......................................................................................................................................... 7 current SCENARIO ........................................................................................................................ 8 WHY SAVE EURO? .................................................................................................................... 10 4.1 ALTERNATIVES................................................................................................................. 11 Split ............................................................................................................................... 11 Institutionalised austerity and ECB bailing out ............................................................ 13 ECB lends money to IMF and latter disburses loans with stiff conditionality’s ........... 13 Creation ofEuropean treasury/ EmpoweringEFSF ........................................................ 13...
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...recession began in December 2007 and ended in June 2009; however, we are still experiencing post-recession effects. The current macroeconomic situation in the US is that there are worries about the national debt, rising interest rates and a double dip recession. The rising national debt is troubling, because this will have a direct impact on the financial markets and interest rates over the long term. The value of “Dollar” is depreciating every other day. Recently, there have been concerns that if the debt ceiling is not increased, the US government will begin defaulting on its obligations. This is problematic, because it means that interest rates for any kind of Treasury securities will be higher (as a downgrade in their credit rating would be inevitable in this situation). (Watkins, 2011) Rising interest rates are a possibility, because the Federal Open Market Committee was focused on: purchasing Treasury securities, commercial paper and providing ample amounts of liquidity to the financial system. This was a part of an effort to prevent the recession that started in 2007 from becoming worse. Now, that the economy has recovered somewhat, there will be the inevitable unwinding of the stimulus. This means that interest rates will be increasing over the long term. (“Lehman,” 2011) A double dip recession is quickly becoming a probability. This is due to the fact that the federal government and states have been aggressively cutting spending to deal with rising deficits. At the...
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...International Political Economy - July 2011 Greece has been experiencing severe fiscal challenges for the past decade. The country’s economic and political situation has reached crisis level thus propelling it into the global lime-light, dominating headlines in print and electronic media. This essay seeks to explain the crisis and explore the implications for Greece, the European Union and the international political economy, should continued assistance not forthcoming. The source of Creek’s debt crisis is both domestic and international. Domestically, analysts point to high government spending, weak revenue collection, and structural rigidities in the economy. This affected the state’s ability to fund government budget and current account deficits, resulting in profound borrowing. As the situation progressed for the worst, the Creek economy relied heavily on international capital markets, which only aided in making the country extremely vulnerable to any shifts in investor confidence. Access to capital at low interest rates after adopting the euro, and weak enforcement of European Union (EU) rules concerning debt and deficit ceilings facilitated Greece’s accumulating high levels of external debt. In October 2009 investors became jittery due to the actions of the newly elected government in revising the estimate of the government budget deficit for 2009 from 6.7% of gross domestic product (GDP) to 12.7% of GDP (Nelson et al., 2010). A few months later, however, in April...
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...Background: As the consequence of the 2008 U.S. banking crisis, Europe was hit by one of the worst debt crisis. Starting from Greece in autumn 2009, the crisis spread to other European countries, especially Spain, Italy, Ireland and Portugal and forced European policy makers to take many actions to limit its consequences (BOG, 2014, p.42). While others European economies such as Spain, Portugal avoided the severe crisis by following advisory strategy like austerity, reducing public spending…, Greece situation did not improved. To help Greece improve its situation, the IMF and Eurozone governments sealed a deal for two bailouts in 2010 and 2012, totalling €240 billion. On July 5, 2015 the majority of Greek citizens voted to reject the Europe’s plan to bail out the country’s economy, which caused the fear about the potential exit from the European Union, Greece’s future and world economy as well. Despite that fact, Eurozone leaders still reached an agreement on a third bailout programme to save Greece from bankruptcy on July 13. Although Greece overcame the severe situation, there is no indicator that the crisis will stop. This essay will discuss Greek situation involving 3 main issues, which are mistakes leading to crisis, financial regulation and the role of banks, potential financial contagion and moral hazard. Discussion: 1. Mistakes leading to crisis: One of mistakes leading to crisis was supposed to involve economic statistical data fraud. According to a comprehensive...
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...oil and commodities decline, the Indian consumers might not benefit as depreciation will negate the impact. The depreciating rupee will add further pressure on the overall domestic inflation and since India is structurally an import intensive country, as reflected in the high and persistent current account deficits month after month, the domestic costs will rise on account of rupee depreciation. Exchange rate risk also drives away foreign investors which in turn depreciates the local currency. Indian Rupee is currently caught in this vicious cycle; it will have to find a stable level to regain investors’ confidence. The depreciating rupee has serious effects on the external debt figures of the nation. The total external debt has increased by Rs. 2186.8 billion to Rs 16384.9 billion by the end of November 2011. Factors that pushed INR into the well Continued Global uncertainty: Owing to uncertainty prevailing in Europe and slump in international market, investors prefer to stay away from risky investments (flight to security). This has significantly affected the...
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...their debt obligations. Financial crises tend to lead to, or exacerbate, sharp economic downturns, low government revenues, widening government deficits, and high levels of debt, pushing many governments into default. As recovery from the global financial crisis begins, but the global recession endures, some point to the threat of a second wave of the crisis: sovereign debt crises. Greece is currently facing a classic sovereign debt crisis. Greece accumulated high levels of debt during the decade before the crisis, when capital markets were highly liquid. As the crisis has unfolded, and capital markets have become more illiquid, Greece may no longer be able to roll over its maturing debt obligations. Some analysts have discussed the possibility of a Greek default. To avoid such a default, however, the Greek government has introduced a variety of austerity measures and, on April 23, 2010, formally requested financial assistance from the other 15 European Union (EU) member states that use the euro as their national currency (the Euro zone) and the International Monetary Fund (IMF).Greece’s debt crisis has raised a host of questions about the merits of the euro and the prospects for future European integration, with some calling for more integration and others less. Some have also pointed to possible problems associated with a common monetary policy but diverse national fiscal policies. This report provides an overview of the crisis; outlines the major causes of the crisis, focusing...
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