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please could someone explain the debt crisis happening in the US just now?

(18 Posts)
ssd Tue 02-Aug-11 14:13:38

keep seeing this is the news, I don't have much knowledge of politics in the US so if anyone can explain it please use simple language!!

thanks

BadgersPaws Tue 02-Aug-11 14:38:08

It's pretty much the same mess as we're in, the US Government has been spending more than it earns for years. So every year it has to borrow more and more money just to keep going.

To give some indication the US has to borrow about $0.40 for every $1 that it spends, where as our situation is about £0.25 for every £1, so the US is plunging into debt even quicker than we are.

However unlike here the US Government is bound by rules that set a maximum limit of how much it can borrow, and the US is just about to hit that limit. Our Government can, and will, just spend away on credit cards to fund its spending.

The President alone cannot raise the limit on what the US can borrow, he needs the support of Congress and the Senate. The President wanted to raise the limit and hopes things sort themselves out, the right wingers wanted to leave it and make some serious spending cuts. They both took it right up to the wire and a compromise deal seems to be in place where the limit does go up but there are also some serious spending cuts.

slug Tue 02-Aug-11 15:01:27

The President wanted a combination of spending cuts AND tax hikes. However, as the Republican party are the majority in congress and are fearful of the Tea Party nutters who violently oppose tax increases, finding a combination that all would accept proved difficult. As it stands, the Tea Party effectivly held the country to ransom and forced the agreement to include no tax increases. The result of this is, as always in these situations, the poor, who rely on Govt services the most, will be the ones to suffer the most.

molepom Tue 02-Aug-11 20:02:41

Where on earth is all the money coming from that countries are borrowing?

Greece, the UK, America, almost everywhere is in debt but to whom?

nojustificationneeded Tue 02-Aug-11 20:31:19

Message withdrawn at poster's request.

islawhiter Tue 02-Aug-11 20:37:22

What i can make out from reading papers and the news everyone is borrowing from Chineze, however the uk is going to sell off stuff to the chineze so in the future we will all be working for the chineze. China will be a dominant force because of all this debt and what happens is they force their politics on everyone too.

islawhiter Tue 02-Aug-11 20:40:31

The problem with keep adding and printing money is inflation, eg what happened in pre nazi Germany when a ladies handbag was worth more then the money inside it and as in Zimbabwe where a loaf of bread costs a weeks wage.

niceguy2 Tue 02-Aug-11 20:55:20

You can't simply print money to pay debts off because it will end up with massive inflation. Actually the American's did do this and called it "Quantative Easing" .

Personally I think it's legalised theft. It's introducing new money into the money supply which isn't backed by any resources.

ssd Tue 02-Aug-11 22:13:11

eh? what do you mean by legalised theft?

also why would printing money cause massive inflation?

and how do the tea party stop taxes being raised? are the tea party the right wing tories over there?as well as the nutters....

BadgersPaws Wed 03-Aug-11 08:51:21

"eh? what do you mean by legalised theft?"

Point of view, most money isn't tied to or backed by a resource, the US dollar in this case had it's link to gold (the "promise to pay") cut in the 70s. Some people really don't like that.

"also why would printing money cause massive inflation?"

Because there's suddenly more of it, so it looses its value, so you need more of it to pay for things.

"and how do the tea party stop taxes being raised? are the tea party the right wing tories over there?as well as the nutters...."

the Tea Party is the very extreme right wing of the already very right wing US Republican party. They do have a number of politicians who will directly vote in a certain way in their "Parliament". They also lobby and push the other Republican politicians and will threaten to try and get them replaced by a more Tea Party friendly politician if they don't vote the way that the Tea Party wants them to. Basically the movement believes in small Government, low Government spending, low taxes and in what it claims is the correct interpretation of the US Constitution.

niceguy2 Wed 03-Aug-11 10:54:01

eh? what do you mean by legalised theft?
Ok, let's assume there's £100 of money in the world. You have £20 to spend. You own 20% of the world's money yes?

So now let's say someone comes along and prints another £100. There's now £200 of money in the world. You still only have £20 yes? Now you only have 10% of the world's money. Your money is no longer worth as much. Does that make sense? Probably not my best example but hope it helps.

maypole1 Wed 03-Aug-11 13:20:08

You will be surprised to Lear in some sates they pay almost no tax, some stars are oil rich and have so much money they pay their residents every year a kind of windfall

The problem is that because their welfare sate unlike ours is very small and only gives the bare essentials and Health care has to be paid for from your own pocket they don't really have much to cut and what really needs to happen is that they need to raise taxes for the rich which they won't dare do and also they also have to get rid of the no tax sates and get some tax paid

BadgersPaws Wed 03-Aug-11 13:44:17

"You will be surprised to Lear in some sates they pay almost no tax"

Some states might not levy income tax (I think there's a dozen or so that don't) but you still have Federal income tax imposed by the US Government. And it's the US Government that was hitting its borrowing limit so the state tax is irrelevant.

The US median average income is meant to be about $40k, and on that you'll be paying 25% income tax to the US Government. I wouldn't say that's "almost no tax".

"The problem is that because their welfare sate unlike ours is very small"

The US welfare state is smaller and less encompassing than ours but the US Government still spends nearly half of it's money on it, more than double what it spends on defence.

ssd Wed 03-Aug-11 15:41:41

good answers, thanks all

HowlingBitch Thu 04-Aug-11 08:50:40

I found this quite interesting to look at

EightiesChick Thu 04-Aug-11 08:54:45

molepom This is exactly the question that keeps bugging me. If most nations around the world are in debt and struggling to pay off their 'deficit', who are they paying off? It feels like we are all suffering to pay money back into a mysterious black hole.

BadgersPaws Thu 04-Aug-11 09:21:00

"If most nations around the world are in debt and struggling to pay off their 'deficit', who are they paying off?"

The Government's of nations, not every business or person within that nation, are in debt to the people who loan them the money.

About half of America's debt is with it's own central bank, the Federal Reserve, the next biggest chunk is with foreign financial institutions (of which a significant chunk are Chinese) and then it's other banks and investors who loaned the US the money.

JeffTracy Thu 04-Aug-11 10:02:13

Governments issue "bonds" that they sell to - well, anyone really, including you and me. They are an "IOU".

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