American debt crisis



US put debt ceiling 14.3 trillion on billion dollar.In May,2011 US had reached that mark or debt.Rebuplicans said that because of fiscal deficit.Fiscal deficit occurs due to stimulus package. Since Government expenditures is not equal to expenses (govt spending).Large amount of money has been spent on health issues ,social security.Republicans favoured reduction of taxes & also asked Obama government to keep close look on fiscal stimulus package,money on health etc.Obama government was not on same pitch it wanted to increase taxes in order to fulfil the fiscal deficit.This opinion was completely rejected by Rebuplicans.So both parties took time to find soloution and took a 2 months time.US had turned from credit to debt country

Timothi Gaitenan who manages treasury department of Central bank of US.He was given the responsibility to manage Govt expenses for 2 months.So the step he took was he did not issue pension funds for 2 months.He used pension funds for 2 months to manage expenses.This added to debt of US because US took debt from public itself.
The 2 months went by but both Republicans could not reach soloution.This lead to crisis which occurred on August 2.
Credit rating
When an individual takes loan then credit worthiness is measured.So because of crisis & way US handled it compelled Standard & Poor to reduce the rating from AAA to AA+.

Impact
US economy is an economy in which many countries rely upon.So when parent gets a heart attack children get scared. So US heart attack will lead to pain in India & China

India
Firstly,FDI & FII would be lost.Reduction of inflow cash.Secondly slow pace of recovery in US will lead to steady growth in Indian GDP.Thirdly,Service exports will be reduced .Fourthly,Forex reserve value will decrease because the dollar value will depreciate & INR will appreciate.

China
Chinese media reacted by saying that US always interferes in International affairs so it should reduce giving financial aid to Pakistan & Afghanistan.This will help in reducing debt.

For better explanation please watch the below video


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