Question

In: Economics

Since the USA has just added about 4 Trillion in additional debt to combat the 'virus',...

Since the USA has just added about 4 Trillion in additional debt to combat the 'virus', the National Federal Deficit will be close to 27 Trillion. With the GDP-Gross Domestic Product projected to shrink by as much as 20% in the 2nd quarter-April through June-that could reduce the GDP to around 20 Trillion. A rule of thumb is that the total National Debt should never exceed more than 150% of the GDP to maintain a solid credit rating and to obtain low interest loans through issuing Treasury Bills/Bonds. Do a little research on Greece.

Find out why they went 'bankrupt'...now being supported by the World Bank or the rest of the world since no individual country will lend them money. Focus on their Debt, GDP, inflation and unemployment.

Solutions

Expert Solution

Current Situation of the US government

  • Congress and the White House are working on an economic stimulus bill approaching $2 trillion.
  • The spending comes with the government already expected to run a budget deficit exceeding $1 trillion this year.
  • Economist Paul McCulley said aggressive spending to combat the coronavirus’ economic impact will be “a bridge to the other side of an act of God.”
  • In addition to the spending, a Treasury backstop of Federal Reserve programs could provide another $4 trillion in liquidity.
  • Administration officials say the spending will pave the way for greater growth later in the year.

Story of Greece

Critics point out that Greece's problems can be traced back to before it joined the euro in 2001, when it was living beyond its means.

After it adopted the single currency, public spending soared. Public sector wages, for example, rose 50% between 1999 and 2007 - far faster than in most other eurozone countries. The government also ran up big debts paying for the 2004 Athens Olympics.

After years of overspending, the country's budget deficit - the difference between spending and income - spiralled out of control.

Then, when the global financial downturn hit in 2008, and the cost of borrowing money from banks rose hugely, the country was ill-prepared to cope.

Debt levels reached the point where the country was no longer able to repay its loans, and was forced to ask for help from its European partners and the IMF in the form of massive loans.

The conditions attached to these loans have compounded Greece's woes - especially for ordinary people.

Greece's debt to GDP ratio is now the highest in Europe, running at 174% in the final quarter of 2014, according to Eurostat.And, after the failure of the bailout talks and the European Central Bank's (ECB) decision not to extend emergency funding, the country has been forced to shut its banks and restrict cash withdrawals to €60 (£42; $66) a day.

Since 2010, the Athens government has been reliant on two European Union-International Monetary Fund (IMF) bailouts totalling €240bn.

Greece's last cash injection from international creditors was in August 2014, and when the eurozone agreement ran out on 30 June, the Greek government failed to make a key debt repayment to the IMF of €1.5bn.

While the IMF says Greece is "in arrears", the European Financial Stability Facility - a body established in 2010 to help resolve the eurozone crisis - says that constitutes a default.


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