United States National Debt Ceiling Essay Example | Topics and Well Written Essays - 2000 words

United States National Debt Ceiling - Essay Example The debate was related with the appropriate level of the Government spending and its impacts on the overall debt and deficit of the country. The crisis was so significant that it affected the US stock market heavily. Prices of the Federal bonds increased like anything and investors were significantly confused about the future economic situations of the world’s oldest democracy. Political fraternity across the country was raising their voices to cut down the governmental expenditures to manage the debt ceiling. Budget deficit was increasing, to tame that deficit debt ceiling was a reactive measure. Due to this economic turmoil, credit rating agency Standard & Poor’s downgraded the credit rating of USA for the first time in US history. The debt ceiling of 2011 was introduced to improve the health of the US financial markets. But unfortunately the measure of debt ceiling was not at all beneficiary for the US financial markets. Lower assets prices and the higher borrowing costs had significant impacts on the public spending. People of the country were significantly uncertain related with the fluctuating assets prices and the borrowing costs. They were not willing to spend their money. Credit risk and stock prices volatility were prominent in 2011 and it continued up to 2012. VIX is a volatility index which is used for measuring the implied volatility in the financial market. During that period of time of debt ceiling that index jumped upwards. It stayed elevated for longer period of time (Irving & Engel, 2011, pp. 34-35). During that period of time investors did not invested their moneys as they perceived the situation as significantly risky. As the market was significantly volatile, investors stored their money as the buffer for the future adverse situations. During that period of time S&P 500 index of equity fell drastically. It was almost 17% down. At that point of time there was no sign of improvement. The index remained on the lower side. The fall in