Obtaining A Bank Loan Crisis

There is a widespread concern about rising levels of debt. Debt can become disastrous for those who live alone or those families who are already having problems with supporting their family. The people who might be struck by debt, they might have trouble recovering. Debt can cause Americans to lose their homes and stability they need to feed, and shelter their families. Although debt comes upon us Americans quickly, people can see debt as terrible thing to be stuck with. It has many disadvantages that can devastate to people.

The United States national debt is large. The U.S. Debt-to-GDP ratio has grown to over 60 percent in recent years. We are more than $15 trillion in debt. In this paper I will address the federal budget, the United States debt, and the resulting impacts on society in several sectors.

2. The government asks for loans from international banks on credit of the U.S. and the debt must be paid

The wholesale and capital market funding are more sensitive to credit and price risk. They merely depend on local funding instead of international ones. Off-balance sheet activities are also given attentions such as margin call, default insurance and options. These items are often neglected previously however; it does count to the bank liquidity account. Interbank transactions are upgraded to electronic transfer which is instant and much more reliable. These actions can minimize the liquidity risk of a bank and thus the default

This problem can be explained more on the basis of the “Iceberg Theory”, according to which we only see a part of something on the surface but the reality remains that much more exists beneath the surface which we are oblivious of. This menace of loan debt has a similar nature in terms of our understanding and awareness of its enormity; that its diagnosis was much delayed than its conception.

Federal spending on interest payments would rise, thus requiring the government to raise taxes, reduce spending for benefits and services, or both to achieve any targets that it might choose for budget deficits and debt.

As a nation, America has accumulated a tremendous amount of debt which will affect not only the lives of the current citizens, but generations thereafter. Currently, the United States public debt is approximately $9.5 trillion, in long form, that’s $9,500,000,000,000. This ridiculous amount of money is a historical accumulation of misappropriated surpluses and exacerbated deficits. It is important for American citizens to not only understand the national debt concept, but also understand the causes and effects that lead to this

The interest payment burden is the real risk that the government faces with increased federal debt.Economists have said that if interest payments hit 12% of GDP there are high chances of the U.S government defaulting its debt.For instance, it is evident that the United States is not currently paying its outstanding debts. New treasuries are being issued to refinance the existing treasuries. For instance, in a case where $100 billion treasuries are matured, the treasure borrows $100 billion additional from revenues through $100 billion new treasuries issuance rather than paying back the initial $100 billion from government revenues. It is more likely that interest rates will vary when new treasuries are issued from those of existing treasuries.

Small loans and their relatively high interest rates have recently come under attack by Alabama legislators according to a report posted at Jdsupra.com.

The encumbrance of debt is the redistributive impact of debt financing. When government obtains funds to finance public expenditures by issuing debt, no compulsion is involved, unlike tax financing. Rather, securities issued by government

It should be noted, prior to the crisis, there was already an increasing concern of economists and critics about the credit quality that was provided by the financial sector at the time when there was low interest rates that were applied by the government. There were also issues about the inappropriateness or ineffectiveness of the standards that were used in extending credit by the financial sector (Calvo, 171).

❖ Late 2009, fears of a sovereign debt crisis developed concerning some European states. Sovereign debts (Gov’t debt) externally issued rose sharply due to numerous bank bailouts.

This paper is mainly focusing on the historical background and causes of debt crisis in late 1970s and 1980s.

Qureshi & Ali (2010) analyzed the impact of high public debt burden on the economy of Pakistan. The sample of the study was 1981 to 2008. From their study a vast negative impact of public debt on the economy of Pakistan had been found by the authors.

At such high levels, government borrowing crowds out private-sector credit, keeps interest rates high, adds to already high government debt, and becomes a key source of macro vulnerability.