American Debt Crisis Essay
“US AND EU ZONE DEBT PROBLEM AND DOWNGRADE and ITS IMPACT IN GLOBAL FINANCIAL MARKET and GLOBAL ECONOMY”
Contents
Introduction to the Crisis 3
American Debt crisis 3
The EU Zone Debt Crisis 5
Impact on Financial Markets and Economy 7
The U.S. Debt Crisis and its Impact 7
The EU Zone Crisis and its Impact 8
Conclusion 9
Works Cited 10
Answers to Questions based on Passage Reading 11
Works Cited (For The Questions only) 13
Introduction to the Crisis
American Debt crisis
In the U.S., spending more than what the government collects/earns is normal. In the month of August, the U.S. will collect around $170 billion and it will spend around $300 billion. Getting the $130 billion is easy. The government can issue bonds or simply …show more content…
(2011). Retrieved from http://theeconomiccollapseblog.com.
Answers to Questions based on Passage Reading
1. What is the relationship between the returns on stocks and the returns on bonds over the 20th century?
The real return on stocks over the twentieth century averaged 6.45% and the return on bonds averaged 1.57% (Bernstein, 2011) . The higher return on equity occurs due to the fact that stocks are much more risky than bonds as an investment option. The stockholders are residual owners and are compensated only after all other obligations have been fulfilled. But the difference of almost 5% in the real return on equity and bonds can be attributed to two factors:
A) The high growth rates of the corporations after the world war enabled them to pay grand returns to the stockholders who undertook risk.
B) There was an inflationary burst due to the wars and the abandonment of hard money as currency (Bernstein, 2011).The returns on equity adjust to inflation very quickly moving up with the inflation. However, the yield on bond does not change so much and hence the investors in bonds suffer. This is precisely what happened
Contents
Introduction to the Crisis 3
American Debt crisis 3
The EU Zone Debt Crisis 5
Impact on Financial Markets and Economy 7
The U.S. Debt Crisis and its Impact 7
The EU Zone Crisis and its Impact 8
Conclusion 9
Works Cited 10
Answers to Questions based on Passage Reading 11
Works Cited (For The Questions only) 13
Introduction to the Crisis
American Debt crisis
In the U.S., spending more than what the government collects/earns is normal. In the month of August, the U.S. will collect around $170 billion and it will spend around $300 billion. Getting the $130 billion is easy. The government can issue bonds or simply …show more content…
(2011). Retrieved from http://theeconomiccollapseblog.com.
Answers to Questions based on Passage Reading
1. What is the relationship between the returns on stocks and the returns on bonds over the 20th century?
The real return on stocks over the twentieth century averaged 6.45% and the return on bonds averaged 1.57% (Bernstein, 2011) . The higher return on equity occurs due to the fact that stocks are much more risky than bonds as an investment option. The stockholders are residual owners and are compensated only after all other obligations have been fulfilled. But the difference of almost 5% in the real return on equity and bonds can be attributed to two factors:
A) The high growth rates of the corporations after the world war enabled them to pay grand returns to the stockholders who undertook risk.
B) There was an inflationary burst due to the wars and the abandonment of hard money as currency (Bernstein, 2011).The returns on equity adjust to inflation very quickly moving up with the inflation. However, the yield on bond does not change so much and hence the investors in bonds suffer. This is precisely what happened