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Abstract

The United States economy, considered the world’s largest, with a GDP of $15 trillion was on the brink of sovereign debt default in the first week of August 2011 because of the Congressional debt ceiling of $14.29 trillion that was likely to be breached on August 2nd 2011. Even though US ranked No 1 in terms of GDP value, holding highest quantum of gold reserves, market analysts felt that the imminent sovereign debt default which was around $14.3 trillion would have had a cascading effect on all the other economies of the world. However, the US Congress after a lengthy deliberation decided to enhance the US debt ceiling by $2.1 trillion in different stages which gave a relief to the investors and other sovereign nations who had invested their reserves in US treasury bills. The US government had, since then, taken some remedial measures to infuse the market confidence. Market analysts however felt that the proactive measures of the US government over the debt reduction program was not sufficient in the short term fiscal reduction measures. Many high net worth US citizens led by Warren Buffet willingly suggested for enhancement in tax rates in the top bracket. However, no radical tax measures had so far been announced by the US to effect fiscal reduction. The soft interest policy adopted by the US Federal reserve had not really helped in easing the unemployment in the US, while the US corporates had been looking into the overseas markets for growth and profit generation. Markets were looking for quick measures for fiscal reduction; generate more cash inflows into the treasury instead of relying on debt inflows. In this context YVReddy, former governor of Reserve Bank of India had opined that US economy had resilience and inherent strength and if US multinationals had decided to help in rejuvenating the US economy by increasing the output, it could generate more employment for the Americans. The case study will analyse the growth of US economy, its build up of the huge debt over the years, discuss the measures taken to resolve the US debt crisis and whether it would restore the prestige of the US among the world economies.
Location:
Other setting(s):
2011

About

Abstract

The United States economy, considered the world’s largest, with a GDP of $15 trillion was on the brink of sovereign debt default in the first week of August 2011 because of the Congressional debt ceiling of $14.29 trillion that was likely to be breached on August 2nd 2011. Even though US ranked No 1 in terms of GDP value, holding highest quantum of gold reserves, market analysts felt that the imminent sovereign debt default which was around $14.3 trillion would have had a cascading effect on all the other economies of the world. However, the US Congress after a lengthy deliberation decided to enhance the US debt ceiling by $2.1 trillion in different stages which gave a relief to the investors and other sovereign nations who had invested their reserves in US treasury bills. The US government had, since then, taken some remedial measures to infuse the market confidence. Market analysts however felt that the proactive measures of the US government over the debt reduction program was not sufficient in the short term fiscal reduction measures. Many high net worth US citizens led by Warren Buffet willingly suggested for enhancement in tax rates in the top bracket. However, no radical tax measures had so far been announced by the US to effect fiscal reduction. The soft interest policy adopted by the US Federal reserve had not really helped in easing the unemployment in the US, while the US corporates had been looking into the overseas markets for growth and profit generation. Markets were looking for quick measures for fiscal reduction; generate more cash inflows into the treasury instead of relying on debt inflows. In this context YVReddy, former governor of Reserve Bank of India had opined that US economy had resilience and inherent strength and if US multinationals had decided to help in rejuvenating the US economy by increasing the output, it could generate more employment for the Americans. The case study will analyse the growth of US economy, its build up of the huge debt over the years, discuss the measures taken to resolve the US debt crisis and whether it would restore the prestige of the US among the world economies.

Settings

Location:
Other setting(s):
2011

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