MONEY & CAPITAL MARKETS

U.S. Debt Crisis



Table of Contents

Introduction1

SECTION 1: U.S. Debt Crisis1

National Debt and Deficits2

Time Line of U.S Debt Crisis3

Recent Developments4

SECTION 2: Factors of the U.S. Public Debt Crisis4

Causes of US Debt Crisis4

Increase in Expenses5

Unemployment5

Debt Accumulation5

SECTION 3: Enactment of Different Acts7

Budget Control Act of 20117

Effects of the Budget Control Act of 20118

Positive Consequences8

Negative Consequences8

American Jobs Act9

Major Initiatives9

Reauthorization of Federal Unemployment Benefits10

Expansion in Reemployment Assistance and Eligibility Reviews11

Funding of USD 4 Billion for New State Reemployment Initiatives11

Short Time Compensation11

Tax Incentive of USD 8 Billion to Hire Long Term Unemployed12

Subsidized Jobs for Low Income and Unemployed Adults12

Prohibiting Hiring Discrimination Against the Unemployed13

SECTION 4: Standard & Poor downgraded the U.S. Sovereign Credit Rating14

Reason for the Downgrade14

Consequences of the downgrade15

U.S. Borrowing Costs15

Downgrades of Insurers16

SECTION 5: Republicans and Democrats16

Republicans VS Democrats16

The Conflicting View on Debt Crisis17

SECTION 6: Personal Reflection17

Conclusion18

References20

U.S. Debt Crisis

Introduction

National government financial debt is created when the expenditures in a fiscal year exceed tax and fee revenue. The national government finances the excess of expenditure over revenue by borrowing. For example, the U.S' government auctions off U.S. Treasury bills, notes, and bonds (U.S. bonds, hereafter). The U.S. Treasury defines the Gross Debt to be the value of all national government bonds outstanding. However, the media and the public often refer to this same concept as the National Debt. Gross Debt and National Debt are synonyms (Hess, 2011). US Debt Crisis is one of the major news flashing in media and clogging our minds for quite some time now. There were many issues which led to it, and there are various possible repercussions to it: the downgrade by Standard & Poor's being one of them. One of the most critical and concerned occurrences challenging the Federal Government and the American people is the extraordinary and uncontrollable U.S. public debt which now has escalated to over $14 trillion. This research paper aims at defining the causes that led to the grim situation and possible courses of action. Moreover, it elaborates different subjects and events in the past that are associated with the U.S. debt crisis or has the potential to affect the economy in this regard.

SECTION 1: U.S. Debt Crisis

This section describes the evolution over the years of events leading up to and contributing to the U.S. uncontrollable level of public debt.

National Debt and Deficits

The researchers are still somewhat optimistic that the American leaders would rely upon the lessons from history to inform their decision making. However, opposition by the Republican Party, on funding of consumer financial regulation and intransigence regarding revenue increases, during recent debt ceiling debate, have highlighted the fact that basic economic theory has been trumped by ideology and special interest politics (Phillips, 2011).

A government's ability to sell bonds depends on creditors' faith that the bonds will be repaid and on the creditors' financial capacity to buy the bonds. Creditors' faith depends on the economy's ability to generate future tax revenue, which depends on the economic growth rate. Moreover, the Creditors' financial capacity depends on their income and ...