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In both 2011 and 2012, the issue that was most discussed in America was the issue to do with addressing the budget deficit. In 2011, it was struggling to recover from unemployment but this continued to persist as a national disaster (Krugman A21). Unfortunately, there was a misconception that the disconnected Congress was the cause of the suffering of the common person in America.
People blamed the political culture for some of the failures and struggles in the nation. Despite the fact that people in Washington talk about debt and deficit, they have no idea about what they are referring to. It is also unfortunate that those who talk most about it have the least knowledge about it.
The so-called experts in the field of economics, who are relied upon by the Congress for such information, have been recorded to have provided false information severally. They have repeatedly provided false information concerning the short-term effects of budget deficits.
Heritage foundation provided forecasted that interest rates would soar high. It also seems that information about the long-term effects of budget deficit is also unknown to the Americans. The politicians’ understanding about debt seems to be very wrong.
Many Americans are worried about the effects of the deficits in the future. They believe that they will need to pay back the money they have been borrowing. In order to pay the interest, taxes must be levied. This would also impose some costs on the economy.
This would occur because it would cause allocation of resources in ventures other than those that are productive in order to avoid and evade tax. However, these costs are not as dramatic as what some have thought it to be.
Various governments easily lived with high taxation rates earlier than they are able to live with currently. The situation is different now. Therefore, debt surely matters to any economy. The American government needs to increase government spending in order to get the country out of the unemployment trap.
The national debt of a given country is the cumulative stock of debt that the government owes the lenders. From the article above, the cumulative debt in 2012 would be that from previous years including 2011. Debts and deficits are a real problem to any economy due to a number of reasons.
Firstly, it hampers the use of fiscal policy. It usually occurs as the government acquires benefits without considering the costs. Debts and deficits may also lead to the crowding effect. This is whereby interest rates increase due to increased deficits. This effect also leads to the reduction in the investments and possibly the total exports made by the given country.
There is an effect in the government savings since it is reduced. Consequently, this causes the reliance of the country on foreign borrowing or it may lower its investments. In the long run, if the investments decrease, it may damage the economy. Older generations usually enjoy the benefits from the debt but the later generations would pay the price.
They will have to repay the debt. This would be in the form of interest payments and deprivation of new initiatives. According to the article, lack of employment was one of the most disturbing issues caused by the debt and deficit issues. However, in some cases, debt may not be overly harmful. This is because it may come with some tangible benefits.
Krugman, Paul. “Nobody Understands Debt.” New York Times 2 Jan. 2012: A21. Print.