The United States debt-ceiling crisis

The United States debt-ceiling crisis was a financial crisis in 2011 that started as a debate in the United
States Congress about increasing the debt ceiling. Under US law, the United States Department of the Treasury cannot incur debt beyond the debt ceiling set by Congress. A failure to raise the debt ceiling would result in being unable to continue fulfilling all its obligations on time. The Obama administration stated that, without this increase, the U.S. treasury would enter sovereign default thereby creating an international crisis in the financial markets. However contrary to what Obama said, if other spending were reduced enough soon enough, default need not occur. The immediate crisis ended on July 31, 2011, when a complex deal was reached that raised the debt ceiling and reduced future government spending. However, similar debates are anticipated for the 2012 and 2013 budget. After the legislation was passed by both the House and Senate, PresidentBarack Obama signed the Budget Control Act of 2011 into law on August 2, the day of the deadline. For the first time in history, the long-term credit rating of the United States government was downgraded from AAA to AA+, and the US economy received a negative outlook. the last part of the 2011 United States federal budget, authorizing federal government spending for the remainder of the 2011 fiscal year, which ends on September 30, 2011. For the 2011 fiscal year, expenditure was estimated at $3.82 trillion, with expected revenues of $2.17 trillion, leaving a deficit of $1.48 trillion. More than 9% of the work force in US is unemployed. Significant percentage underemployed and stagnant wages for many of those who are employed demand for goods and services will remain depressed. The path to increasing demand is to reverse the upward slope of income inequality and put more income into the pockets of a vast middle class that actually needs things (after all, there is only so much the rich can buy). Improving income equality would also have a beneficial effect on national cohesion. More government jobs are the answer to unemployment. That must be one of the more clueless expressions of American exceptionalism. Bush tax cuts: 2001, 2003 and 2006 in his working years and now Mr. OBAMA in 2010 signed another two year extension and the money involve in it is $544.3 billion.Proponents argued that the tax cuts would spur economic growth. The Bush tax cuts carried an initial 10-year cost estimate of $1.35 trillion, so you can assume how big money it is. At the end of 2010, public debt in developed countries accounted for 92% of their gross domestic product (GDP), as opposed to 78% before the Subprime Mortgage crisis. In 2008 US suffered from a massive debt crisis and in 2011 US is currently experiencing a massive debt crisis. So for that they have to manage the public debt to resolve this issue. U.S. borrowing is expected to soon reach its $14.3 trillion legal limit, and if the Treasury is to continue issuing bonds, Congress will need to increase the cap. Institute resolution procedures to close troubled financial institutions in the shadow banking system

Control the leverage assumed by financial institutions and require any executive compensation to be related to long-term performance. To limit systemic risk, it is necessary to break-up institutions that are "too big to fail" Regulate the institutions that act or function similarly to banks. Contingent capital or capital insurance held by the private sector could add-on to the common equity in times of crisis. In order to identify any systemic risk, ther should be an early-warning Before using taxpayer money in bailouts, haircuts on bondholders and counterparties should be imposed. To assist homeowners, the mortgage balances should be reduced thus giving the lender a share in any future home appreciation "Not only the default but efforts to resolve it would arguably have negative repercussions on both domestic and international financial markets and economies,". At a minimum, a default could hurt U.S. bonds, the dollar and investors' portfolios. "Our bond market and stock market would crash,"Even if Congress never approves another spending increase or tax cut, the debt ceiling will need to be raised repeatedly just so the country can continue meeting its obligations already on the books. The real failure of leadership has been the perpetual willingness by both Democrats and Republicans to say "yes" to spend and tax cuts all of which add considerably to the country's debt when they are not paid for. The two Plans are already very similar. They both cut discretionary spending over 10 years and both establish bipartisan committees to recommend future budget cuts. Neither includes tax increases (as Reid earlier dropped the tax increase from his proposal in a bow to Senate Republicans). The two sides are divided on one issue: the Senate Democrats are opposed to the House Republican demand for a second debt-limit vote tied to another $1.8 trillion in budget cuts that likely would come some time in February as the Presidential election campaign is throttling up. The Senate Plan raises the debt ceiling by $2.7 trillion (cutting spending by a CBO-revised $2.2 trillion), which extends borrowing authority until 2013. Reid is reportedly looking for more spending cuts to appease Republican concerns. In reality, those negotiations are already ongoing, so the ultimate compromise will be ping-ponged quickly between both chambers until a final agreement can be reached, likely by early next week, avoiding a government shutdown and default. This will be great news for financial markets and for the U.S. and global economies.