All you want to know about the US debt deal
After weeks of political brinkmanship, the Democrats and the Republicans agreed to a compromise deal late Sunday evening to raise the US
TheUS
TheUS
The
The
Here is what the deal is all about:
Debt ceiling:
To be raised by up to $2.4 trillion in three stages, enough to enable the government to function till 2012 end; $400 billion right away, another $500 billion later this year, subject to vote of disapproval; and a third increase of $1.5 trillion after a special congressional committee enacts matching spending cuts.
Spending cuts:
About $2.4 trillion over 10 years in two stages; an initial $917 billion when the deal passes Congress and another $1.5 trillion by the end of the year.
Way forward:
The deal must be approved by Congress and signed by President Obama by 11:59 pm Tuesday to prevent a default on debt payments. If a 12-member House-Senate committee is unable to produce a plan to cut deficit by $1.5 trillion, through tax overhaul and changes in safety net programmes, or Congress does not approve it, a pre-set array of spending cuts would kick in, including cuts in military spending and Medicare payments to health-care providers
To be raised by up to $2.4 trillion in three stages, enough to enable the government to function till 2012 end; $400 billion right away, another $500 billion later this year, subject to vote of disapproval; and a third increase of $1.5 trillion after a special congressional committee enacts matching spending cuts.
Spending cuts:
About $2.4 trillion over 10 years in two stages; an initial $917 billion when the deal passes Congress and another $1.5 trillion by the end of the year.
Way forward:
The deal must be approved by Congress and signed by President Obama by 11:59 pm Tuesday to prevent a default on debt payments. If a 12-member House-Senate committee is unable to produce a plan to cut deficit by $1.5 trillion, through tax overhaul and changes in safety net programmes, or Congress does not approve it, a pre-set array of spending cuts would kick in, including cuts in military spending and Medicare payments to health-care providers
Risks:
House Democrats may not support the deal, says House of Representatives Minority Leader Nancy Pelosi.
Downgrade:
Not completely ruled out. Standard & Poor's indicated last week that anything less than $4 trillion in cuts would jeopardise theUS
The deal & world markets
US Treasury bonds are seen as the safest investment by governments worldwide.India
House Democrats may not support the deal, says House of Representatives Minority Leader Nancy Pelosi.
Downgrade:
Not completely ruled out. Standard & Poor's indicated last week that anything less than $4 trillion in cuts would jeopardise the
The deal & world markets
US Treasury bonds are seen as the safest investment by governments worldwide.
Is the US
Although it might be a bit early to predict with certainty the future implications of the debt crisis facing theUS today, the situation is fluid enough to raise an alarm for the US
Because of the recent financial crisis and the ongoing war on terror, the tax revenues of theUS
In May 2011, theUS
This money is, however, expected to run out in the first week of August. After this, the American government will have no money to spend while it is also not allowed to borrow more money, hence the crisis.
Although it might be a bit early to predict with certainty the future implications of the debt crisis facing the
Because of the recent financial crisis and the ongoing war on terror, the tax revenues of the
In May 2011, the
This money is, however, expected to run out in the first week of August. After this, the American government will have no money to spend while it is also not allowed to borrow more money, hence the crisis.
Why can't the US
InAmerica
The system was introduced during the First World War. Prior to 1917, the year when theUS
To allow more flexibility in the system , it was decided that a maximum limit of the government's gross debt would be fixed and the government could borrow money without Congressional approval if the total debt was within this limit.
In
The system was introduced during the First World War. Prior to 1917, the year when the
To allow more flexibility in the system , it was decided that a maximum limit of the government's gross debt would be fixed and the government could borrow money without Congressional approval if the total debt was within this limit.
Why is Congress not raising the ceiling?
Over the years, the ceiling has witnessed several raises and the people who are opposing any further increase argue that the present situation, where the national debt has reached its highest point in 50 years, is the outcome of these hikes.
A large proportion of the current debt has been accumulated over the past 30 years, starting with the Reagan regime. There is also an ideological debate on the methods of repayment of the debt.
The conservative Republicans are arguing for reducing government expenditure by discontinuing certain schemes. The liberal Democrats, on the other hand, want to continue the welfare policies and raise the money through increased taxes.
Considering the upcoming presidential elections, none of the parties can afford to displease their vote banks. It is however assumed that a consensus will be reached and theUS
Over the years, the ceiling has witnessed several raises and the people who are opposing any further increase argue that the present situation, where the national debt has reached its highest point in 50 years, is the outcome of these hikes.
A large proportion of the current debt has been accumulated over the past 30 years, starting with the Reagan regime. There is also an ideological debate on the methods of repayment of the debt.
The conservative Republicans are arguing for reducing government expenditure by discontinuing certain schemes. The liberal Democrats, on the other hand, want to continue the welfare policies and raise the money through increased taxes.
Considering the upcoming presidential elections, none of the parties can afford to displease their vote banks. It is however assumed that a consensus will be reached and the
What will happen if the ceiling is not raised?
UnlikeGreece and other European countries which recently witnessed a debt crisis, the US US
But in that case he might face impeachment, as this would be illegal. If he doesn't ignore the ceiling, Obama's government will have to default from paying its bills and repaying the debt. In that case, apart from non-payment to its creditors the government will also have difficulties in paying for its welfare schemes, salaries of its employees and soldiers and the money committed for various infrastructure projects.
This might trigger a slowdown as people will not have money to buy goods and services. A default on treasury debt which is raised by selling treasury bills might also result in a financial crisis. These bills are bought by individuals, corporations, banks, insurance firms, local and foreign governments. Non-payment might create a situation similar to the crisis created after the collapse of companies like Lehman Brothers.
Unlike
But in that case he might face impeachment, as this would be illegal. If he doesn't ignore the ceiling, Obama's government will have to default from paying its bills and repaying the debt. In that case, apart from non-payment to its creditors the government will also have difficulties in paying for its welfare schemes, salaries of its employees and soldiers and the money committed for various infrastructure projects.
This might trigger a slowdown as people will not have money to buy goods and services. A default on treasury debt which is raised by selling treasury bills might also result in a financial crisis. These bills are bought by individuals, corporations, banks, insurance firms, local and foreign governments. Non-payment might create a situation similar to the crisis created after the collapse of companies like Lehman Brothers.
Credit: ET Bureau & Agencies