THE DEBT CRISIS

What is the reasons behind the debt crisis??

1-a sharp drop in economic output

2-led to the lack of the economic growth,

3- but they found that this problem was caused by a lack of profitability in productive areas.

•The financial crisis that happened in 2008, had led to:

Obama’s Reaction

government Budget deficit treasury

Bonds and

debt instruments

banks

corporations

Foreign country

There were always more than enough people to invest in Federal government bonds knowing that these bond were rated to be AAA and it was the safest types of

bonds.

What about the case of Egypt?

• the bond rating has declined from Ba3 to B1.

• When a Bond ratings below BBB/Baa are considered to be not investment grade and are called junk bonds.

But the government kept issuing bonds and debt instruments without having enough revenues to cover this debt.

So the gap between

Governmen

t outlay

s

Governmen

t revenues

Kept widening and the debt kept increasing till it reached 14 trillion dollars were it were about to exceed the debt ceiling, and as the amount of money that the government can borrow is limited by the debt ceiling,Therefore the congress has agreed to raise the level of the debt ceiling

on April 15, 2011.

If the debt would have exceeded the debt ceiling this might have led to a real crisis that the US might have

entered

sovereign default this means that the US at that time will not be able to pay the interest and the

principle at the maturity date of these bonds

thereby creating an international crisis in the financial market

This action was accompanied by a plan

Increase taxesDecrease expenditures

the proposal to cut spending was the one who was supported by many democrats and republicans and

there has been a bill to have spending cuts of roughly $1 trillion.

So now the current debt is

$15,071,624,794,970.66this means that every man, woman and child in

the United States currently owes

$48,358.74 for their share of the U.S. public debt

The US is indebted mainly to Americans. foreigners hold about $4.4 trillion of the national debt, with

China and Japan owning the biggest chunks.

We can see from the chart here that china owns the largest amount of this debt as they own about 21.09% of the whole

debt owned by foreign countries, or about $1173.5 billion dollars. Next come Japan with a $914.8 billion dollars, or

about 20.40%.

China

china accumulates a large amount of the US treasury notes .

the RMB is significantly undervalued against the dollar and that has been a major contributor to the large annual U.S. trade deficits with China and the loss of U.S. jobs in recent years.

So now the problem can be analyzed in two ways first they don’t have the money to pay for their debt

second the Chinese products are competing with the US products all around the world and in the US itself. So now with this unfair competitive advantage that china has, the US products will not be able to sustain.

Solution for the debt crisis

Cutting subsidies

Cutting benefits

..……………………

The End