...This essay is based on the financial crisis from 2007 to 2008, which discuss whether the time at that moment is different. Here, we focus on the financial crisis happened in USA around these two particular years, therefore we mainly talk about ‘U.S Sub-prime Crisis’. Section I is to summarize the ideas that Reinhart and Rogoff provide according the book ‘This Time is Different: Eight Centuries of Financial Folly’ (2011) and their working papers. Section II is to evaluate and counter critically toward their argument. Also, a conclusion will be drawn after these two sections. 2.Section I The basic idea that Carmen M. Reinhart and Kenneth S. Rogoff suggests is that what happened in 2007 and 2008 was nothing different from previous financial crisis. They consider financial crisis can be traced by past experience from different countries around the world as usual. Their book and working papers introduce massive historical database which have constructed to study the debt (both external and internal), banking crisis, inflation, currency crashes and so forth. There are sixty-six countries included in the data, such as Africa, Asia, Europe, Latin America, North America, and Oceania (Reinhart and Rogoff, 2008). They studied various types of financial crises, however, the book mainly includes sovereign defaults and banking crises as these two forms of crises are particularly relevant to modern society. They covered government debt defaults in eight centuries all over the...
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...WP/13/266 Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten Carmen M. Reinhart and Kenneth S. Rogoff WP/13/266 © 2013 International Monetary Fund IMF Working Paper Research Department Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten1 Prepared by Carmen M. Reinhart and Kenneth S. Rogoff Authorized for distribution by Stijn Claessens December 2013 This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Abstract Even after one of the most severe multi-year crises on record in the advanced economies, the received wisdom in policy circles clings to the notion that high-income countries are completely different from their emerging market counterparts. The current phase of the official policy approach is predicated on the assumption that debt sustainability can be achieved through a mix of austerity, forbearance and growth. The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression. As we document, this claim is at odds with the historical track record of...
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...National Debt in the U.S.A Name Professor Institution Course Date ABSTRACT The fast increase in the National government debt is becoming of interest to decision makers and the citizens of the USA. This paper examines the implications of the increasing debt financing to the economy of the United States. The proportion of the U.S.A National debt is rising in comparison to the National GDP. In the past decade, the USA Treasury has been borrowing trillions of dollars from both foreign investors and its citizens to help fund wars save the financial system as well as promote the economic development of the country. Does the increasing debt have any impact on economy? This paper will explain that an appropriate analysis on the United States debt is important to cope up with this worrying trend. INTRODUCTION In general, debt can be viewed as something specific in nature which the creditor and debtor can’t control at will. The United States National debt has been increasing at an average rate of about $1.64 billion each day since September, 2004 (Lucas, 2005). Manuel estimates that every human being in the United States currently owes $56,651 for their share of the U.S.A public debt. As at 27th October 2013, the total National debt of the United States was $ 17,211,829,040,346.01 (Manuel, 2013). This is an indication of how the national debt in the United States of America has been rising in the recent years. Recently...
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...International Finance May 10, 2015 U.S International Debt Please look at the International part of the U.S. Government debt and discuss, 1) why the country has had to rely on International lenders, 2) why the situation with the International lenders may have caused the U.S. Federal Reserve System to initiate Quantitative Easing, and 3) give your opinion of the possible future state of the U.S. economy as it relies on International lenders. This future state should cover government issues, corporate issues, and individual issues. The history of international lending to developing countries shows surges of lending and recurrent financial crisis. Consequently, international lenders have proved to be very important entities during financial crisis. In my personal opinion the United States government has had to rely on international lenders to enable higher spending without having to increase taxes and to meet the debt that the government has created during the past several decades looking forward to recover and stabilize the economy. From the beginning of the early 1990s, the United States has borrowed heavily and continuously money from international lenders and from its trading partners due to the crisis that the United States economy has been experiencing since the recession. Developing countries can be at a disadvantage when it comes to borrowing funds from international lenders. From my point of view, problems can arise when governments do not have the knowledge and experience...
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...financial crisis in 2008. The economist had difficulty for seeing the systematic risk because of the unregulated new financial instruments such as credit default swap and derivatives securities. The Federal Reserve Bank was responsible for the financial crisis due to large amount of money flow in the United States. Thus, US needed to implement the monetary policy in order to overcome from the financial crisis. This paper drafted the causes of financial crisis analyzed by the macroeconomist and drafted by the American Bar Association. The Federal Reserve Bank kept the interest rates historic lows due to recession in 2000-2002. The low interest rates causes the unwanted money supply and this excess credit was invested heavily in the United States in the form of treasury securities and financial derivatives that leaded to bubble in commodities and houses prices. This paper examines the Federal Reserve monetary and fiscal policy during and prior to course of recession in 2008. The economy had faced at least three crises since 2008, fiscal crisis, financial crisis and unemployment crisis. These crises are interrelated. The unemployment crisis during 2008 has causes the fiscal deficit at the frightening level. The economy is still facing the unemployment and fiscal crises. The unemployment rate remains high in the world and the fiscal problem in Europe has not been fully resolved. The Fiscal Policy: The fiscal policy played a considerable role in the financial crisis during 2008...
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...“America is on a dangerous budget path. Current spending and debt are dangerously high, and future spending and debt are on track to rise even higher in large part due to the increasing entitlement spending” (Boccia, 2013). As recent as February of 2014, congress has decided to yet again raise the debt ceiling for America, this time capping the limit at $17.2 trillion dollars. This marks the fifth effective increase in the debt ceiling since August 1, 2011, when it was $14.3 trillion (Sahadi, 2014). If America continues to raise this limit, how is the debt crisis that our nation is currently experiencing going to affect our businesses; and more importantly, us as individuals in future years? The issues that need to be addressed to see where the root of this problem starts, and where the solution can be found starts with looking at the events other countries have or are currently facing, and how they have come up with strategies to solve their debt crisis. From there we need to focus on the economic trends that we are currently in, and the negative and positive effects that they are having. The effects that will be discussed are how creditors view America, how it affects businesses through prolonged drag and economic growth, and how it will affect the individual with inflation and increase in taxes. As this paper addresses these issues, it will reveal the scary truth of the tolls that will be put on America if they continue with their dangerous budget path. “The warning bells...
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...In May of 2011, the United States reached its debt ceiling cap which could have caused major issues to the American government and economy. The debt ceiling cap is the amount of money the government can legally borrow to pay off its debts owed to the public including U.S. bonds and government trust funds such as Medicare and Social Security. The first debt ceiling limit was set in 1917 at $11.5 billion and has been raised 74 times since 1962. Ten of those times have been since 2001. If the debt ceiling wasn’t raised U.S. Treasury would not have the authority to borrow any more money which is a problem because the government borrows to make up the difference between what it spends and what it takes in. That means the government would have to pick and chose who to pay and who to put off paying and this puts the country in the perception of being in default (Sahadi, 2011). To avoid going into default in May, Treasury Secretary Timothy Geithner took extraordinary measures and was able to bring the total debt down enough to allow the government to continue borrowing until August 2, 2011. Although disaster was briefly postponed, the debt ceiling debate deadline was looming and sparked a significant conflict between Republicans and Democrats in Congress and the President. Republicans did not want to raise the debt ceiling without making significant spending cuts and used the urgency of the situation as leverage to try and negotiate to get what they wanted (Sahadi, 2011). The form...
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...Fiscal Policy ECO/372 June 1, 2015 Alan Beideck Fiscal Policy The United States deficit, surplus, and debt influences the economy in a number of ways, and it creates an impact on taxpayers, social security and Medicare users, unemployed workers, and students. These issues also affect the countries financial reputation, exports, imports and the Gross Domestic Product (GDP). The U.S. economy is experiencing a budget deficit and outstanding debt, and the outlook is not good for taxpayers. If these two items do not get under control, future generations will be left to pick up the pieces and will have to try to find a way to maintain and control the budget. Taxpayers Taxpayers are the people that pay and contribute to state revenue. Government deficits affect taxpayers by increasing taxes and interest. "Inflation also affects the deficits by affecting the size of social security payments, federal pension payments, and interest on the federal debt. The deficit and surplus are sensitive to the business cycle" (Deficits, Surpluses, And Debt, 2015). "If the government use surplus it would "give tax cuts to taxpayers, increase income transfers, pay down national debt and spend it on goods and services" (Deficits, Surpluses, And Debt, 2015). Future Social Security and Medicare users The Social Security program began in 1935 and benefits have always been paid on time, even with modified laws over the years. Benefits are expected to continue to be paid on time through...
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...government has been relying heavily on foreign aid and the reliance on financing from international capital markets resulted to an accumulation in national debt. The interference of fiscal policy by the injection of money in the economy and the increase of money supply and the encouragement of consumption has been a huge factor in contributing to the overall outcome. I. Introduction According to many economists, the financial crisis of the late 2000s is considered to be the most severe financial crisis since the great depression of the 1930s. A downfall in the United States banking system was the trigger behind the formation of the crisis, which resulted in the breakdown of large financial institutions. The government was forced to bailout banks as a result and similarly the stock market faced a huge blow, not only in the United States but all around the entire globe. Well into 2006, the United States housing bubble flopped, resulting in the decrease in the values of securities causing the real estate pricing to vastly decline, which similarly resulted in the collapse of huge financial institutions all around the world. Foreign direct investment suffered a huge blow as damaged investor confidence and the decline in credit and security availability have contributed to the major collapse of the stock market. The United States is considered to have an economy that acts as a liaison in the global market, which as a result affects all economies around the world. Investors and...
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...its economic outlook for the United States and Europe through the end of the year. Originally, the International Monetary Fund had expected the United States to grow at around 2.5 percent to 2.7 percent. Instead, its outlook decreased this growth in 2011 to around 1.5 percent and 1.8 percent in 2012. For Europe, the International Monetary Fund lowered its projection of economic growth from 2 percent to 1.6 percent this year and 1.7 percent in 2012 to 1.1 percent. The reason for this decrease in its economic growth projections is due to events on the political plain. Over the summer, the United States congress increased its debt ceiling without effectively implementing strong policies to decrease its deficit. President Obama has proposed $3 trillion in tax increases and spending cuts over the next ten years. This proposal is going to be considered by a congressional panel which has been charged with finding at least $1.5 trillion in deficit reduction. Any proposal that has been presented to raise revenue has also been met with stiff resistance from the Republican Party. This has also impeded progress in finding a way to reduce the United States budget deficit. The European Union and those 17 countries that utilize the euro as their currency have such a bad growth forecast because of worries that Europe will not be able to contain its debt crisis. Many of these countries such as Greece have unfortunately been unable to get a handle on its public debt. Financial trouble and slow...
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...The debt crisis of Nigeria and Greece Introduction National debt is a problem that can inflict any country including the developed countries. Almost all countries go into budget deficit one way or the other and end up borrowing money. The most direct effect of the government debt is to place a burden on future generations of taxpayers. When these debts and accumulated interest come due, future taxpayers will face a difficult choice. Inheriting such a large debt cannot help but lower the living standard of future generations. In the 1960s and 1970 some developing countries were encouraged to borrow money to service old debts and also to finance development projects in their country like infrastructure. This has been necessitated by the availability of huge oil earnings deposited by OPEC member countries and were eager to lend at very low rates. Moreover, it is misleading to view the effects of government debt in isolation. Government debt can be divided into two categories namely domestic debt and international debt. The International debt is facilitated by the formation of such institutions like the International Monetary Funds (IMF) the International Bank for Construction and Development (World Bank). Governments borrow money from the private sector and foreign governments if they can't pay for all their spending with taxes and government revenues. A government will issue bonds at bond auctions every so often and market participants will come in and bid for them. Market participants...
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...The United States deficit contributes to its debt and the debt contributes to the deficit. We know the longest running uninterrupted surplus for the Unites States was from 1920 to 1930 but spent most of it combating the war. This will show how the U.S. deficits, debt, and surplus affect the following areas; the taxpayers, future social security and Medicare users, unemployed individuals, University of Phoenix students, The United States financial reputation on an international level, a domestic automobile manufacturer (exporter), and a Italian clothing company (importer). Taxpayers This will show how the debt and deficit affects taxpayers. Taxpayers get caught up in the government debt and are left to pay it off. Individual debt is different from government debt, and the reasons for this are: (1) the government lives forever and people don’t, so the government is ongoing. When people die, all debts must be paid to old Uncle Sam before relatives get the reminder. (2) The government can print money and people cannot, and as long as another country accepts our currency, we can always exchange money with those countries. (3) The government owes much of it debt to itself. It is sort of like owing oneself so one will never go broke. The internal debt which is the debt owed to other governmental agencies or to its own citizens, and when it pays on its internal debt it involves a redistribution of the citizens but it does not reduce the income of the citizens. For example...
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... First Name: 10-Digit Affiliate ID Number: Article Title: Economic Report Sings Blues on Jobs Author(s), Date and Page Number: Jonathan Weisman and Greg Hit, February 12, 2010, A6 Article Word Count based on ABI Inform Database: Executive Summary: “Economic Report Sings Blues on Jobs” written by Jonathan Weisman and Greg Hutt announces to its readers that on the Thursday February 11th, 2010, the annual Economic Report of the President was submitted to congress. According to the article, the report comments and makes predications on job creation, the advantages and disadvantages of a job bill to stimulate the economy and references to historical government intervention into United States Economy during the current time of the crisis. Discussion of Course Concepts: Considering that a currently proposed jobs bill is to be passed, the Economic Report of the President mentioned that the White House Council of Economic Advisors expects job growth per year up to a quarter million in 2012. This year unemployment levels are expected to remain stagnant and by 2012 unemployment levels will improve by a couple percent, making it just above 8%. Yet with high unemployment expectations, actions to create jobs have become a forefront issue for politicians in Washington D.C. The creation of one quarter million jobs in 2012 and the improvement of unemployment levels are being proposed at 100 billion dollars. The Senate Banking Committee, which is bipartisan...
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...history has the U.S. run budget deficits and budget surpluses? What were the reasons for the deficits/surpluses during those time periods? When the government runs a budget deficit, it is essentially spending more money than it is taking in. The caveat to this is the accounting method used to measure expenditures. For example, the Social Security fund creates an expense for the future expense. A deficit is not a bad thing though. A deficit means the government is pending money and that spending can be as investment in the future (assets) or to help the economy grow out of a recession. The internet is an amazing source to locate data. I found a site with tons of spreadsheets you can download to see the history of the US budgets, spending, and debt. The government has almost always run deficits so it was quite easy to locate two of them. The first one I chose was the largest the deficit had been since the recording had started. From 1982 to 1986 when Reagan was President the deficit hit $1 and $2 billion dollars for the first time in history. This was also a time of recession in the economy. This was still only between 4% and 6% of GDP. The next period of deficits started in 2002 and have continually increased since that time. The percentage to GDP from 2002 to 2008 was between 1.5% and 3.2% though. In 2010, the percentage of the deficit to GDP spiked at 10.7%, the highest in history. George H W Bush was President when the deficits returned in 2002 and this was when the US began the...
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...3, 2, 1: Global Debt Meltdown We are steamrolling toward a massive global debt meltdown, and at this point world leaders seem to be all out of solutions. Over the last 30 years or so, the greatest debt bubble in the history of the planet has produced unprecedented prosperity in the western world. But now that debt bubble is starting to burst and the bills are coming due. Many believe that "ground zero" for the coming global debt meltdown will be in Europe. Unlike the U.S. and Japan, the nations of the EU can't just print more money to cover their debts. Nations such as Greece, Portugal and Italy must repay their debts in euros, and those nations are rapidly getting to the point where their debts are going to overwhelm them. Unfortunately, major banks all over Europe are very highly leveraged and are also very heavily invested in the sovereign debt of nations such as Greece, Portugal and Italy. If even one EU nation defaults it will start tipping over financial dominoes. If more than one EU nation defaults it could cause a cataclysmic wave of bank failures all over Europe. But Germany and the other more financially stable countries of the EU cannot bail out nations like Greece, Portugal and Italy indefinitely. Pouring money into Greece is like pouring money into a black hole. When you take money from financially stable countries and pour it into hopeless messes, you may stabilize things for a little while, but you also cause the financial condition of the financially...
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