U.S. of A : Debt Ceiling

[MAGNeT]

People are suggesting less welfare and higher taxes. Would that work, or is it just a drop in the bucket..?

Do you think people who were on spending spree will be ready to pay taxes.See where is greece now.They want their people to pay as much as half their earnings as tax.Will anyone be ready for same.On contrary people will prefer unemployment and get services from government and that is whats happening.

The only good point is there is no other currency as replacement for dollar else surely all would have dumped it.I have come across people in US who are getting cheaper loans still and investing it markets of INDIA for better return instead of continuing with the spending spree.

 

[blr_p]

That's nothing, UK's debt is ~300% of their GDP!

No, its at about 150%, thats what the economist said recently. Only trust the financial publications when it comes these figures, wiki & other sources are not always that accurate or uptodate. Course problem with economist is the articles are not acessible beyond a month or so unless you have a subscription.

No clue where you got that 300% figure. Even Japan's is approaching 200%. Point is these are not healthy figures for an economy.

BTW wasnt India's debt closer to ~300-400 billion? IINM our GDP is around 1.4 trillion so how is our debt 80% of our GDP?

Here you go. And that article is dated Feb 2010 btw (!)

Finance Minister Pranab Mukherjee said the budget deficit would be cut to 5.5 percent of gross domestic product in the financial year that starts in April, from 6.7 percent. He also promised that India would reduce the country’s debt, which stands at more than 80 percent of G.D.P., to 68 percent in five years.

i was under he impression India's public debt to GDP was at 60% and had no idea it was this high.

What isn't clear is what kind of debt is being referred to for India, is it external debt or public debt ?

EDIT: If the figures given here are true, than India's debt-to-GDP percentage is 15% and that of UK's is 400%

Ignore private debt that will be higher, if I am in debt and lose my house it makes no difference to you.

The figure that matters is public debt, ie the debt that has to be paid back and by which govt can levy duties & taxes to raise that money.

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Well the only big difference is Sep 2008 had a bailout by the US government. Who is gonna bail the US government? In the unlikely event of a default happening, it will be much more severe. Capitalism as we know it, will either cease to exist or would have been seriously altered.

You just can't help it with the hyperbole can you. Yeah, the socialists would love for that to happen but it wont.

A default ain't gonna happen. There is just no suspense in this story at all for me.

They playing so close to the due date is a concern enough, and instances of the ceiling being increased has accelerated in the last 10 years. Of course them brushing the issue under the carpet for a future implosion is also an issue. Someone has to repay the debt sometime or take a loss somewhere, neither of which is happening atm.

Aug 2 is D-Day.

Until then its just hot air.

 

[blufox]

Debt ceiling is useless and artificial limit set by us Congress on its expenditure.

No one is going into hyperinflation, as you know dollar is the reserve currency of the world. They can keep printing it more or less and rest of the world will keep the USD floating with very less value hit.

The limit has been raised numerous times. They can keep raising it.

 

[Aces170]

For someone who is interested in the topic:

8 Great Reads On The Debt Deal

 

[asingh]

What does this mean for the nation. Down wards quicker..?

 

[red_devil]

S&P have now downgraded the US credit rating.

Do we see another market crash around us? And if so, is it headed the 2008 way or beyond or is it just a correction that's gonna happen?

 

[asingh]

^^

To what rating..?

 

[red_devil]

^ from AAA to AA+

 

[Mephistopheles]

Can somebody explain to me what exactly could be the implication of a sovereign default on US, the world and its creditors? What would happen to the government bonds issued?

Tell me if I'm wrong, but its like someone lends the government some money without any collateral and if the government defaults, you loose your money? Is that it? All you can do is 'help the defaulter to get out of the crisis so that it can pay its obligations'?

What happens in the case of Sovereign strategic default?

Pardon my naivety, but what exactly is meant by this and are there any negative implications of this -

Jack Balkin, the Knight Professor of Constitutional Law and the First Amendment at Yale Law School, suggested two other ways to solve the debt ceiling crisis: he pointed out that the U.S. Treasury has the power to issue platinum coins in any denomination, so it could solve the debt ceiling crisis by simply issuing two platinum coins in denominations of $1 trillion each, depositing them into its account in the Federal Reserve, and writing checks on the proceeds. Another way to solve the debt ceiling crisis, Balkin suggested, would be for the federal government to sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days.

 

[blr_p]

Can somebody explain to me what exactly could be the implication of a sovereign default on US, the world and its creditors?

Nothing much, just the dollar loses some of its value. if the Mephistopheles Bank holds lots of $$$ you as MD will get upset.

What would happen to the government bonds issued?

They become cheaper.

Tell me if I'm wrong, but its like someone lends the government some money without any collateral and if the government defaults, you loose your money? Is that it?

nope, think of it like a credit card, you don't make your payment, they charge you more interest. a govt can always raise money through taxes. Now it means little more taxes.

All you can do is 'help the defaulter to get out of the crisis so that it can pay its obligations'?
What happens in the case of Sovereign strategic default?

Interest rate on loans increases. This end up costing the US taxpayer in excess of $100billion per year.

US net worth is $58 trillion so chances of not paying back are remote.

Its the knockover effects within the US as credit becomes more expensive. This can cause less confidence in the market as ppl don't plan on spending as much which causes a contraction in the economy, loss of jobs etc. This circus was completely avoidable and could have saved the taxpayer that extra hundred billion but the idealogues & partisans are ruling the roost.

Party comes before country.

Sound familiar

 

[asingh]

Indirectly would the $$ get weaker. And the ones holding a lot will cringe.

 

[Mephistopheles]

nope, think of it like a credit card, you don't make your payment, they charge you more interest. a govt can always raise money through taxes. Now it means little more taxes.

What if a government does not want to pay its obligations, what could be the ramifications of that?

 

[blr_p]

What if a government does not want to pay its obligations, what could be the ramifications of that?

There is no 'does not want' if they refuse to make their payments, then it will be harder to raise loans and much more expensive in the future. Govts need loans like an alcoholic needs a fix.

The only case where they cannot make a payment is when they are completely bankrupt like we were in 1991. Thats when the IMF & WB come in and tell you what to do. That's why we had to reform & open up like Greece & Ireland will have to do. Their case is more acute though. We were never in debt upto our eyeballs, we were just a non-functioning economy that could not meet our obligations. We got richer after we opened up, Greece & Ireland will have to pay off their debt over decades.

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Indirectly would the $$ get weaker. And the ones holding a lot will cringe.

Haha, imagine you were smacking your lips when you made that comment. Time to buy more stuff from the US

It has to. Oil prices will rise.

But how fast will the change transfer over to India. The demand for $$$ in India isn't as high as abroad. The $ rate here depends on the price $ costs on the LIBOR.

 

[hackboy89]

is recession coming again..?

i'm in the final year of my engg and i really wanna have a job..

don't wanna get caught up in this so-called RECESSION like it happened few yeatrs ago ans shattered many indian dreams.. :no:

 

[wingmysoul]

I just went through the thread, and still not clear as to what will happen.

Is there a possibility of a crisis like we had in 2009?

 

[irfanlai]

Check this video....its being shared around on Facebook

‪Understanding the Financial Crisis - very well explanation!‬‏ - YouTube