By Grace Ruskin
The situation of America is quite hard hit now. The touching on the debt ceiling on 2nd of May 2011 by the government has successfully put the whole nation and subsequently the world in turmoil. Almost a circus ensued after that with the Republicans and the Democrats at each others’ throats regarding the issue of raising the debt ceiling. It was quite clear that President Obama’s government wasn’t successfully able to implement debt management practices resulting in the US Treasury taking unprecedented steps to keep in control the debt situation. It was announced by the U.S. Treasury secretary, Timothy Geithner that the Congress needs to come to an agreement by the 2nd of August regarding increasing the debt ceiling. Barely a few hours left on hand, the Republicans and the Democrats finally passed a motion in majority to raise the debt ceiling though not without conditions.
The Republicans have put forward the proposal of internal adjustment to deal with the issue of debt here. Majority of them voted for spending cuts across different fronts such as education, military spending, transportation and Medicare and Medicaid payments. However, most democrats were against this as this plan proposed deep spending cuts without any plans of increasing revenues. Even many economists were of the view that such spending cuts during the time of economic recovery from recession can slow down the process. President Obama along with the Congress leaders had mutually agreed to raise the debt ceiling by an amount of $2.4 trillion in two stages. The initial spending cut was supposed to be followed by a second phase to be approved by a Congress bipartisan committee. This would aim at coming up with savings plan of $1.5 trillion with both spending cut and tax increase.
To maintain the debt management plan, U.S. Treasury Department has said that the U.S. Treasury has made it possible to pursue the policy of the government’s cost of financing and it has not changed. The Fed has made to “sell short to buy long” in order to replace the decision of debt maturity plan of 2012. The sale of surplus for a period of 3 years and lower$400 in short-term debt and purchase the same amount of remaining maturity of 6 to 30 long-term bonds. This move has been made to extend the holdings of the Treasury in fact the equivalent of $400 billion national debt limit and to drive down long-term interest rates.
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