Saturday, July 30, 2011 @ 9:55 AM
What a year! The USA - and the rest of the world - is still reeling from what is said to be the biggest economic downturn since the Great Depression. In the meantime, the US’ debt ceiling has also been brought into the spotlight. In the past decade alone, the debt ceiling has been raised more than 10 times, and currently stands at more than $14 trillion. With Congress still undecided on what actions to undertake, the issue of raising the debt ceiling looms.
What is the debt ceiling?In the United States, the federal government can pay for expenditures only if Congress has approved the expenditure. If the total expenditure exceeds the revenues collected there is a budget deficit, and the only way that the shortfall can be paid for is for the government, through the Department of the Treasury, to borrow the shortfall amount by the issue of debt instruments. Under federal law, the amount that the government can borrow is limited by the debt ceiling, which can only be increased with a vote by Congress. (Taken from Wikipedia: http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis )
Why this is important
Raising the debt ceiling due to the large United States federal budget deficits and the increasing federal debt is worrying, as budget deficits and long-term debt is detrimental to the economy and will also bring into question the Balance of Trade Payments as well as foreign exchange. According to the Congressional Budget Office (CBO): "At the end of 2008, that debt equaled 40 percent of the nation's annual economic output (a little above the 40-year average of 37 percent). Since then, the figure has shot upward: By the end of fiscal year 2011, the Congressional Budget Office (CBO) projects federal debt will reach roughly 70 percent of gross domestic product (GDP) — the highest percentage since shortly after World War II." The sharp rise in debt after 2008 stems largely from lower tax revenues and higher federal spending related to the severe recession and persistently high unemployment in 2008–11. The US' ability to pay for its expenses is brought into question, and the outcome of this debate will affect the actions that the MAS will undertake with regards to the exchange rate policy with the US.
Meanwhile, the Singapore dollar has continued to grow and become stronger against the US dollar, as current exchange rates stand at:
While a stronger SGD is not a bad thing, the USA is still an important player in the global economy and its actions will definitely affect everyone, including Singapore. Congress is expected to come to a decision regarding raising the US debt ceiling soon, so keep your eyes peeled for more information.
What is the debt ceiling?In the United States, the federal government can pay for expenditures only if Congress has approved the expenditure. If the total expenditure exceeds the revenues collected there is a budget deficit, and the only way that the shortfall can be paid for is for the government, through the Department of the Treasury, to borrow the shortfall amount by the issue of debt instruments. Under federal law, the amount that the government can borrow is limited by the debt ceiling, which can only be increased with a vote by Congress. (Taken from Wikipedia: http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis )
Why this is important
Raising the debt ceiling due to the large United States federal budget deficits and the increasing federal debt is worrying, as budget deficits and long-term debt is detrimental to the economy and will also bring into question the Balance of Trade Payments as well as foreign exchange. According to the Congressional Budget Office (CBO): "At the end of 2008, that debt equaled 40 percent of the nation's annual economic output (a little above the 40-year average of 37 percent). Since then, the figure has shot upward: By the end of fiscal year 2011, the Congressional Budget Office (CBO) projects federal debt will reach roughly 70 percent of gross domestic product (GDP) — the highest percentage since shortly after World War II." The sharp rise in debt after 2008 stems largely from lower tax revenues and higher federal spending related to the severe recession and persistently high unemployment in 2008–11. The US' ability to pay for its expenses is brought into question, and the outcome of this debate will affect the actions that the MAS will undertake with regards to the exchange rate policy with the US.
Meanwhile, the Singapore dollar has continued to grow and become stronger against the US dollar, as current exchange rates stand at:
1 USD = 1.2019 SGD
1 SGD = 0.83202 USD
While a stronger SGD is not a bad thing, the USA is still an important player in the global economy and its actions will definitely affect everyone, including Singapore. Congress is expected to come to a decision regarding raising the US debt ceiling soon, so keep your eyes peeled for more information.
