 With all the talk on Budget deficits in the US and EU countries and the current fears of

Ireland’s soveriegn debt crisis – please make a 10 minute presentation on the

 Monetary policy options that the RBI has in controlling the economy

 Budget deficits in the US and EU countries and the current fears of Ireland’s soveriegn debt
crisis

Us Budget deficit

The United States public debt is presented by the United States Treasury as two

calculations: "Debt Held by the Public", defined as U.S. Treasury securities held by
institutions outside the United States Government, and the "Gross Debt," which includes
intra-government obligations (e.g., the Social Security Trust fund).[1]

As of November 7, 2010, the "Total Public Debt Outstanding" was approximately 95% of
annual GDP, ($13.723 Trillion) with the constituent parts of the debt ("Debt held by the
Public") being approximately 66% of GDP ($9.14 Trillion) and "Intergovernmental Debt"
standing at 34% of GDP .

Risks and Obstacles

Risks to the U.S. dollar and economy
A high debt level can affect inflation, interest rates, and economic growth. A variety of
factors are placing increasing pressure on the value of the U.S. dollar, increasing the risk
of devaluation or inflation and encouraging challenges to dollar's role as the
world's reserve currency. If another currency or basket of currencies replaced the dollar
as the reserve currency, the U.S. would face higher interest rates to attract capital,
reducing economic growth for the long-term.

Long-term investment

But other economists argue that large budget deficits undermine the
economy by squeezing out private investment.

Benjamin Friedman, professor of economics at Harvard University, says

that "what is at stake in all this is America's economic growth".

He argues that large budget deficits take a substantial proportion of

America's savings, preventing it being put to more productive use in the
private sector who should be buying new equipment, developing new
technologies, and retraining the workforce.
And he points to the Reagan years of high budget deficits, when net
investment fell to historic lows and the standard of living and real wages
of the typical American family stagnated.

US budget deficit falls to $1.3tr

US unemployment has remained high, pushing up

benefit payments.

The US budget deficit fell to $1.3 trillion (£813bn) in the year to 30 September, official
figures suggest.

The deficit, which comes after the end of the US financial year, represented 8.9% of GDP
and was £122bn less than the 2009 level.

However it is the second highest since the end of World War II.

The data "underscored the administration's commitment" to cutting the massive deficit, the
government said.

But Treasury Secretary Timothy Geithner warned that "we still have a long way to go to
repair the damage to the economy and address the long-term deficits caused by the crisis."

The US has come out of recession but has seen sluggish recovery and spending on benefits
has continued to rise.

Unemployment, which has stayed stubbornly at about 9.8%, is widely seen to be holding
back US growth.

"Our fiscal outlook, which remains challenging, has improved over the past year," said Mr
Geithner and the head of the Office of Management and Budget, Jeffrey Zients, in a joint
statement.
They said the improvement was due to "careful stewardship" of emergency programs aimed
at put the economy on the track to recovery - such as the Troubled Asset Relief Program
(Tarp) to bail out banks,

Rates risk
Spending decreased and revenues rose, but analysts said the government was still
borrowing 37 cents of every dollar spent.

And deficits and government spending are expected to contribute to a backlash against the
Democrats at mid-term elections next month. The Democrats currently control both houses
of Congress.

However both parties have acknowledged that rising deficits will cause trouble for whoever
controls Congress after November.

US President Barack Obama has set a goal of cutting the deficit to about 4.3% of GDP by
2013 but there is scepticism that President Obama's cross-party deficit committee will be
able to produce a plan that hits such ambitious targets.

There are concerns from some analysts that huge deficits will leave foreigners less willing to
keep purchasing US Treasury debt - in the form of bonds.

Economists have predicted that the deficits could result in high interest rates as the
government is forced to offer more attractive rates to lure investors.

"If we get to 2013 and policymakers don't look like they have a credible plan to deal with the
deficit, then interest rates are likely to rise significantly and that will jeopardize the recovery
we have under way at that time," said Mark Zandi, chief economist at Moody's Analytics.

EURO CRISIS

In early 2010, fears of a sovereign debt crisis, the 2010 Euro Crisis[1] developed

concerning some European states,[2] including European
Union members Greece, Ireland,Italy, Portugal[3] and Spain.[4] This led to a crisis of
confidence as well as the widening of bond yield spreads and risk insurance on credit
default swaps between these countries and other EU members, most importantly
Germany.[5][6]

The crisis started in Greece and the top EU members knew they were going to bail out Greece
and potentially any other member that needed help, but they pretended that they would not. One
of the obvious reasons for the bailout was not to protect Greece, but to save the bond holders;
most of the bond holders are foreigners. That’s the same reason the banks were bailed out in the
US, to protect the large shareholders; it’s all a game of smoke and mirrors. 
Concern about rising government deficits and debt levels[7][8] across the globe together
with a wave of downgrading of European government debt[9] has created alarm in
financial markets.

reland’s crisis, set off by its foundering banks, drove up borrowing costs not only for Ireland but
for other weak links in the eurozone such as Spain and Portugal. Ireland’s agreement takes some
pressure off those countries, but they still may end up needing bailouts of their own.

The European Central Bank, which oversees monetary policy for the 16-nation eurozone and first
raised alarm bells about a renewed cash crisis in Dublin banks, said the aid would “contribute to
ensuring the stability of the Irish banking system.” Sweden and Britain, not members of the euro
currency, said they also were willing to provide bilateral loans to Ireland.