PUBLIC DEBT

Public Debt

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The paper is based on six section, each section discusses the individual question, the first section describes details of the evolution over the years of events leading up to and contributing to the U.S. level of public debt. The 2nd section discusses the major factors impacting the level of public debt and what major Federal spending programs contributed to this accumulation of debt. The 3rd section describs the important elements of the Budget Control Act of 2011 that was enacted on 8/2/11. The 4th section defines the principal factors and reasoning that prompted the Standard & Poor (S&P) credit agency to downgrade the U.S.Sovereign Credit Rating.

Table of Contents

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Section 011

Operating and Capital Budgets1

Evolution over the years2

Section 025

Indicators used for assessing the federal debt burden5

Why Report Budgets?5

Elements Of The Budget Control Act Of 20116

Why Report Capital Budgets?6

Should the U.S. Government Report a Capital Budget?8

Weaknesses in Government Budgeting9

Section 0311

Principal factors and reasoning that prompted the Standard & Poor (S&P)11

Section 0414

Views about Republicans and Democrats about Debt crisis14

Section 0517

What Is the “National Debt”?17

Section 0619

Recommendations19

References21

Public Debt

Section 01

Progress of an economy is measured in terms of how well a country manages the flow of capital and cash. Difference in the collection and payment structure defines proportionate purchasing capability of government. Debt ceiling is imposed by the government to protect the structure of lending by government and manage its budget deficit. However, excessive cash outflow increase pressure on the government to move towards debt financing for cash acquisition to settle its payment.

Debt ceiling is a limit imposed since 1917 by US law to the federal government debt. However, US government gradually increased the limit with the passage of time. Congress has the sole power to borrow money for the government needs under section 8 of Article 1 . Recent increase in the debt ceiling shifted the limit to 14.294 trillion dollar. President Barrack Obama allowed Congress to raise the debt ceiling to a minimum of $ 2.1 trillion .

Operating and Capital Budgets

State and local governments report operating budgets and capital budgets. In general terms, an operating budget is an enumeration of (a) expenditures on current operations and (b) the revenue inflows required to finance those operations (current operations take place each period). Typical expenditures on current operations include purchases of services and of tangible items. Services are commodities that cannot be stored, for example, state employee salaries and interest payments on government debt. Tangibles are items that are used up each period, for example, stationery and gasoline. Revenue inflows collected in 2009 include tax and fee collections that are used to pay for 2009 operating expenditures.

A fiscal year is a 12-month period covered by an operating budget. The U.S. federal government's fiscal year begins on October 1 of each calendar year and ends on September 30 of the following calendar year. Before the beginning of a fiscal year, governments formulate planned operating budgets, which show planned expenditures and expected tax and fee revenues. However, some operating expenditures are difficult to plan for ...