The US government, like most governments, spends more than it earns.
Example:
$ 2.4 Trillion it earns from Taxes
$ 3.5 Trillion it spends on Salaries for government workers, various subsidies, foreign aid, healthcare, running various institutions such as national parks, security apparatus, etc., space programmes, etc.
$3.5tn - $2.4tn = $1.1 trillion
So how can it bridge this gap?
- By printing more money
- By issuing bonds
- By cutting spendings
- By raising taxes
Raising taxes and cutting spendings are not popular. And the political party in government wants to come back to power. Printing more dollars stokes inflation — meaning goods become more expensive. Again not popular with voters.
So the best option is to issue BONDS, also called US TREASURIES.
These bonds are sold to - individuals, banks, and foreign governments.
Thanks to US' global heft, these are favourites with investors. According to May 2013 US Treasury figures, China owns roughly $ 3.4 tn of US bonds.
Federal Reserve coordinates the issuance of bonds. Ben Bernanke is the chief of Fed. Janet Yellen will replace him next February.
By issuing bonds, the US government is essentially borrowing. But the lawmakers have set a cap on the amount the government can borrow. This is known as the debt ceiling. The current cap is at $ 16.69 tn Over the years the debt ceiling has been raised — over 70 times since 1962. But this time round the US congress has refused to budge.
The reason is political: Barack Obama, the president, is a Democrat but the Republicans led by Paul Ryan have a majority in the House of Representatives.
At the centre of this slugfest is a healthcare bill termed as Obamacare.
It basically wants to expand healthcare and improve quality. Republicans think that the scheme is too expensive and will add to the country's economic woes.
The US government has enough money in its kitty to last till October 17. After that it could be staring at default of payment. If that happens credit ratings agencies will downgrade US' credit ratings — and that will surely hit the business confidence; no investments, no jobs and a looming shadow of recession.
US' inability to repay its creditors will have a domino effect — banks and corporates will collapse across the globe. At the time of writing, Republicans have offered Obama a short-term debt limit increase to stave off default.
Example:
$ 2.4 Trillion it earns from Taxes
$ 3.5 Trillion it spends on Salaries for government workers, various subsidies, foreign aid, healthcare, running various institutions such as national parks, security apparatus, etc., space programmes, etc.
$3.5tn - $2.4tn = $1.1 trillion
So how can it bridge this gap?
- By printing more money
- By issuing bonds
- By cutting spendings
- By raising taxes
Raising taxes and cutting spendings are not popular. And the political party in government wants to come back to power. Printing more dollars stokes inflation — meaning goods become more expensive. Again not popular with voters.
So the best option is to issue BONDS, also called US TREASURIES.
These bonds are sold to - individuals, banks, and foreign governments.
Thanks to US' global heft, these are favourites with investors. According to May 2013 US Treasury figures, China owns roughly $ 3.4 tn of US bonds.
Federal Reserve coordinates the issuance of bonds. Ben Bernanke is the chief of Fed. Janet Yellen will replace him next February.
By issuing bonds, the US government is essentially borrowing. But the lawmakers have set a cap on the amount the government can borrow. This is known as the debt ceiling. The current cap is at $ 16.69 tn Over the years the debt ceiling has been raised — over 70 times since 1962. But this time round the US congress has refused to budge.
The reason is political: Barack Obama, the president, is a Democrat but the Republicans led by Paul Ryan have a majority in the House of Representatives.
At the centre of this slugfest is a healthcare bill termed as Obamacare.
It basically wants to expand healthcare and improve quality. Republicans think that the scheme is too expensive and will add to the country's economic woes.
The US government has enough money in its kitty to last till October 17. After that it could be staring at default of payment. If that happens credit ratings agencies will downgrade US' credit ratings — and that will surely hit the business confidence; no investments, no jobs and a looming shadow of recession.
US' inability to repay its creditors will have a domino effect — banks and corporates will collapse across the globe. At the time of writing, Republicans have offered Obama a short-term debt limit increase to stave off default.
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