US Debt Crisis

WHAT IS U.S.DEBT CRISIS?
By P.Balaji

Let us take an example of a house.  Normally, each  month there would be a budget based as per the income and expenditure of the family.  In case of the expenses are  more than the income, the head of the family would have to borrow money from outside to meet up the shortfall.  Though the availability of the fund, is the prerogative of the person lending.  He/she would lend money after vying the possibilities like credit worthiness and repayment capacity of the person borrowing.

Enlarge this sequence to a country. In this case the country discussed is US.  In fact when President Bill Clinton demitted his office, he left a surplus revenue of trillions of dollars in exchequer.  However, his successor President George W Bush, could not manage the US economy successfully.  This was due to America engaged in wars in countries like Iraq and Afghanistan.  Moreover,  the oil prices worldwide had started increasing that dented the purses of most of the countries, including US.

President Obama had to inherit already weakening economy from George W Bush.   Then came the sub-prime crisis.  This coupled with slowing down of economy had put lot of burden to  the fiscal.    As US has traditionally been a consumption country, due to this slow down , the economy started to contract. As the circulation of money was fast depleting, the   Public had been left with little money to spend.  Further,  the slow down also resulted in  layoffs' and consequently increasing  of unemployment ratio.

US has many forward programs like health care and social security programs for her people.  Successive presidents' had to spend large amount of money to keep these program  going for their political survival.  This also had burdened the depleting economy.  With the culmination of various factors, the revenue collection were not happening as per the budget requirement and hence the debt gap was widening.

As a state policy, no President of US can borrow money from outside unless a mandate is provided by the congress by way of debt ceiling.  As the debt ceiling was reaching its level, a fresh authorization was sought by Mr.Obama from the congress.  As he is a democrat and congress is  controlled by republicans, the sanction was not easily forthcoming.  In fact, the congress gave the sanction to raise the debt limit on the final day of the default. It created lot of uncertainties amongst the world.

One may wonder why such partisan approach  was taken by republicans while the country was facing financial crisis.  It had some basis.  Mr. Obama wanted to raise of Debt ceiling along with proposals to levy increased taxes to wealthy citizens and cut in government spending on health care.  This was not accepted by republicans and  a compromise formula was found on the last day after Obama dropped his last two conditions.

However, by this time the damage was done.  The world could not believe that US is in such a financial mess.  Added to this,  the renowned rating agency, Standard and Poor's had downgraded US rating from AAA to AA+ with a rider of negative outlook.   This had pressed the panic button and you are seeing mayhem in world markets.

Those countries that had lent to US and invested in US are feeling the heat. As US was touted as safe haven for almost all the countries in the world, they could not react to this fast collapsing in front of their eyes.  Nobody was knowing the internal financial crisis US  developing for some time now, including US themselves.