United Nations of America is suffering from cash crunch presently. USA has crosses the limit of debt ceiling. When the government reaches its debt ceiling, it means that it has reached the maximum amount of debt it is legally allowed to accumulate.
Currently, the United States of America is facing a significant cash crunch as it has surpassed the limit of its debt ceiling, according to the United Nations. This situation indicates that the country has reached its maximum borrowing capacity, causing financial strain and challenges in meeting its financial obligations. The United States must address this issue promptly to ensure financial stability and find effective solutions to manage its debt.
Debt ceiling limit already been crossed in January 19, 2023, but as per estimated by US government had sufficient money to spend till September. USA spends $17 Billion per day. Although the tax returns of the Assessment Year 2023-24 have been due in April, actual tax revenue is less than estimated by the government. Therefore, experts have been believed that USA has sufficient money to spend till June 2023 only.
Now, opposition party that is ‘republic party’ and ruling party that is ‘democratic party’ has agreed to revise limit of debt ceiling but permission of congress is yet to received.
The situation is so worst that Current President of USA has cancelled the meeting of QUAD held in Sydney Australia and come back to USA to handle the situation personally.
The American economy is most influential economy in the world. Key sectors of the American economy include manufacturing, services, finance, technology, and agriculture. Manufacturing involves producing goods such as automobiles, machinery, and electronics.
Economy of United States of America has $23 trillion economy. USA runs budgetary deficit as income of the USA is lessor than the income earn from the various sources by the government. Economy is run on simple formula which is
Saving= Income – Expenses
The excess amount spend by the US government is finance through borrowings. Debt is raised through other countries by way of issuing them the treasury bills and bonds against the interest. It is the investment for the other countries; they earn interest from the US government on the investment. Countries of the world have considered US one of safe country to invest.
Total Debt on the United States of America till January 2023 is $ 31 Trillion. Out of total debt 25 % is held by the other countries.
Highest debt is raised from Japan is around $ 1.1 trillion, raised $860 billion from china, $232 billion from India as per the data available in January 2023.
US Government has also raised loan from other departments such as Social Security Trust, Federal Reserve etc. Total debt from the other government departments is around $6.8 trillion. Remaining amount of debt is raised though the general public of USA such as Investors, Companies, Mutual Funds etc.
It is to be seen that debt ceiling limit had revised 78 times from year 1960. The highest debt is raised in the term of former President Mr. Barak Obama that is $7.6 Trillion.
USA’s Federal Reserve can issue the unlimited cash in the economy. In 1973 USA and Saudi had entered into agreement named ‘Petro-Doller Agreement’. As per the said agreement both countries were agreed to make the trade of oil in US Doller. This step of USA makes it the world’s dominance leader. 80 % of the trade has been done in the US Doller.
Reason of the situation:
- The government’s total expenses exceed the total income earned from various sources, resulting in a budget deficit. In simple terms, the government is spending more money than it is earning. This situation arises when the government’s expenditures, including public services, infrastructure development, healthcare, and social programs, surpass the revenue generated from sources such as taxes, fees, and other forms of income. A budget deficit occurs when there is a gap between what the government spends and what it collects in revenue. To cover this deficit, the government needs to borrow money by issuing bonds or taking loans. This borrowing adds to the national debt, which is the cumulative total of the government’s outstanding obligations.
- During the pandemic, the United States government took measures to provide financial assistance to the general public by issuing an additional $3 trillion in currency notes. This move aimed to help individuals manage their expenses and cope with the economic challenges brought about by the pandemic. As a result, the public had more money available to spend on various needs. However, this increase in the amount of money circulating in the economy led to a rise in inflation. When there is more money available for spending, it can lead to higher demand for products and services. This increased demand, coupled with supply chain disruptions and other factors during the pandemic, pushed prices higher. To finance the increased spending and meet its financial obligations, the government needed to borrow more money. Borrowing involves issuing government bonds and securities, which are purchased by investors and institutions. By borrowing, the government is able to fund its spending programs and initiatives.
Effects of the situation on USA: What if money of USA finish
- The debt ceiling limit imposed on the United States can have significant consequences, including potential impacts on the stock market and causing investor panic.
- Government employees can affect adversely, the salaries and benefits offered them by government will going to delay in future. Pension of retired person will also reduce as well delay.
- General public will suffer and will have a financial strain.
- A debt ceiling crisis can force the government to prioritize spending, potentially leading to cuts in various programs and services. This can affect areas such as education, healthcare, infrastructure, and social welfare programs.
- If the debt ceiling issue is not resolved promptly, it may lead to concerns about the government’s creditworthiness. Investors may demand higher interest rates on government bonds and loans, increasing the cost of borrowing for the government.
- Potential Downgrade of Credit Rating: Failure to address the debt ceiling could result in a downgrade of the country’s credit rating by rating agencies. This can have long-term effects on borrowing costs, investment, and the country’s overall financial standing.
Effect on the whole world
- USA will lose the trustworthiness of the world. The investment of the world make stringent. Trust on Doller will also decrease.
- USA stock market also affects all over the world’s stock market. The panic investors of USA will go to withdraw their holdings from the world’s market that may reduce the foreign direct investment in the stock market of the countries. As we know maximum foreign direct investment comes from USA. Economies which are highly depending on the economy of USA will also adversely affect.
- Dominance of the USA on the world will reduce.
Conclusion:
The borrowing by the government adds to the national debt, which is the accumulated amount of money owed by the government. The government must carefully manage borrowing to ensure its ability to repay the debt in the future.
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