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For several years now, the United States of America is among the first world countries in terms of industrialization, advancement in technology, and strength of the economy. It has been known as a superpower whose authority and development never ceases for long.
However, in the past few years, there is an observable decline in the economy of the US. From a first-class and independent country, it is gradually stepping down the staircase of power. The formerly strong economy of the United States is currently facing a downward tendency in terms of economic strength, which has not been experienced by other countries (Heffner, 2006).
In a few years or even months, the prestige of the superpower may become a second-class country from several perspectives. There are many reasons for this point of view. The first is that the country is already depending on the production of other countries. The US is not anymore capable of sustaining its own needs thus;, there are more imports in the market than products. Production is dropping low, and it is a concerning problem not just for the officials but for the nation itself as well. The selling of government and public assets is also not uncommon since there is a scarcity of funds wherein the government should take their expenses from.
Aside from the skewed of import and production, another threatening aspect of the financial arena of the US is the massive debts. In order to maintain a standard of living that is currently unmanageable for most citizens. These debts may be helpful but only in a short period of time. In reality, the long-term effects of these debts are detrimental if not well taken care of by the government. The clock of the debt is ticking, and for every second, there is a net increase in the interest. The economy and the citizens are nevertheless the front-line victims of these undertakings.
The public debt of the U.S.
Acquiring debts is already natural for a certain country. Many countries have a debt to other countries because of some unpredictable circumstances and the likes. In the case of the United States, the primary cause of massive debt is the over funding and overspending of the government. Aside from this, the inability of the government to control the outflow of the budget is a contributing factor in this case.
For the past years, the government has already accumulated about eight trillion dollars as a debt, with a quarter of it coming from external investors (Gongol, 2005). In fact, when the debts of all developing countries are added together, the debt of the US is still far greater, which makes the country the largest debtor in the world at about 277 billion dollars interest per annum (Warren, n.d.). This massive amount has been passed on from generation to generation, which made it so huge that paying for it and clearing its entirety would seem impossible for a single term of administration. In the current administration of Bush, the federal debt has boomed from 5.6 trillion in his inauguration to more than 8 trillion (Fitzgerald and Carmichael, 2006).
Cause of build-up
High-interest rates and occurrences of inflation are some reasons why the debt has reached this certain amount. Furthermore, another reason external to a debts nature is that the government has been releasing excessive funds to some projects, especially on their operating expenses.
Surely, there would really be a lesser chance for the government to pay it back when used in ongoing operating expenses rather than using it as an investment for some infrastructures and other cases and necessities badly needed by the nation like constructing protective structures and public works (Gongol, 2005).
Pros of high public debt
When the debts continue to expand, however, some economic analysts contend that there would be more benefits to the GDP. While maintaining a good focus on expanding the GDP, the amount is subtracted from the GDP would not make that big impact. The theory for this is that while the deficit spending of the government increases, the GDP also increases its amount, thereby decreasing the amount of debt in return.
This is based on the Kondratieff Wave Theory, which holds that the future growth of the economy depends on the low rates and growing debts. The economic recovery of the government, based on this theory, is due to the increasing amounts of debt. A rough estimate of a 3-4% GDP growth rate would be expected when interest rates in the debts are at about $2.5 trillion a year.
Cons of high public debt
While there are some hopes of benefit regarding the tremendous amount of public debt, there are more risks to it. There are some assertions about the negative effect of the massive debt to the currency of the US. Hyperinflation- a case observed in some countries that also had such a big amount of debt, is not impossible to happen in the country.
For the past months, there was a blatant decline in the dollar value, and it was because of the debt that was owed to other countries’ central banks. This situation poses a great threat to the financial and political aspects of the country.
Furthermore, there would be a great change in the tax-paying policies and rules because of the risk of inflation and the dire need to increase the public revenue. Because of this, there would be a domino effect in the government’s policy on collecting revenues from the public. Extending the tax cuts would be an aid in reducing deficits and debts (Kogan et al., 2007), so the public should expect this sooner or later.
Since the Heath care agencies and programs, especially Medicare, Medicaid, and social security programs, are vital determinants in the federal budget, there is an expected change in the health systems (Kogan et al., 2007). These health insurances are the biggest spenders of the federal budget every fiscal year, and it is where most problems come from. Since there is much expense in these programs, there would be more program cuts and reforms so that there would be more budget allotted for the payment of the principal rates of these debts.
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Alternative solutions to the problem
It is expected that if there is a continuous accumulation of debt and interest rates, the debt to GDP ratio will extend up to 231% in 2050 (CBPP and CBO Data). Meaning, the GDP would be very much affected because of the amount dedicated only to pay these debts. The economy would be seriously harmed with these things going on.
There are many things to consider in solving this problem. The problem of debt is a complex undertaking since there is more than what meets the eye. The government still has the chance to provide a solution to the problem to solve this problem.
As mentioned earlier, health care insurances are the single most expensive programs of the government which receive the most budget allotment. Trillion marks are reached for this certain program, and this should be diminished in order to attain a more stable GDP, thus a stronger economy (Lochhead, 2004).
However, the problem with this solution is the risk that will be imposed on the recipients of this service, especially the elderly, the retirees, the disabled, the patients, and other health-challenged persons. The solution for this would be a primary intervention of the government.
Since the government already foresees a great loss of budget because of health-related problems. They must be the ones to initiate drives and campaigns so that the problems about health would decline. With this, the number of expected casualties and recipients of the health insurance would tend to decrease. Primary interventions about health problems range from simple advertisements to direct problem-solution attacks on health. The government should deem that solving health problems in the first place would be a big factor in determining the decline of health programs expenditures. Furthermore, the costs in solving the health risk itself would be lesser than spending for the victims in the aftermath of the certain risk.
Regarding the social security programs, the government may cut the budget allotted for them by limiting the programs or the recipients of programs they offer. This may be a very complicated and challenging task, but they should do these corrective measures in order to maintain the country’s superpower status.
Implications of the alternative solution
The alternative solution mentioned earlier is very amateur and perhaps complicated, but it is a reality. Though complicated, it could surely help the government pay back the debts in a shorter period of time so as to decrease the interest rates and the potential harms that it can hurl on the economy.
Perhaps the number one contradiction against this solution is the public castigation and complaints. This is possible since their (the recipients of programs and services) life, and their living is at stake. The primary thing that the government should do is to raise the awareness of the public regarding the threat that the government debt poses to each and every citizen of the country. Awareness is a key factor in determining the public’s willingness to cooperate with the government in reducing their debts and solving other endeavors.
Surely, if the government is the only one aware of the serious problem, they would only be the one concerned about its effects. If the public keeps on making perceptions that are mere understatements of the real problem, there would be less cooperation involved. Everyone should be involved in combating increasing debts and interest rates because it is a national concern. Though the government format is republican, it doesn’t mean that the elected officials and concerned officials are the only ones to battle against these economic endeavors.
The federal debt is a very concerning problem the country faces, and there is a dire need for national cooperation in solving it. Though the risk of solving this problem may be great, solving it in a timely manner is needed, and that should be now. The government, however, must take into consideration the public’s awareness regarding the problem so that their involvement would nevertheless be guaranteed.
Losing the status of a superpower is a big threat to the nation as a whole, in every single aspect of it. We need not wait for another term or another administration to solve the problem regarding the federal debt. Every day is an opportunity of solving it, and we should not lose these chances, for the consequences would surely be grave.
- Carmichael, Kevin and Alison Fitzgerald. “Economy: Effect of rising debt soon to be felt in U.S.” Bloomberg News Online. 2006.
- Center on Budget and Policy Priorities, Central Budget Office
- Gongol, Brian. “Five Big Economic Threats to the United States.” Gongol.com 2005.
- Heffner, Thomas. “Major Economic Problems Facing the United States”. Economy In Crisis.org 2006.
- Kogan, Richard, et al. “The Long Term Fiscal Outlook is Bleak.” Center on Budget and Policy Priorities. 2007.
- Lochhead, Carolyn. “Speeches ignore impending U.S. debt disaster.” San Francisco Chronicle Online. 2004. Web.
- Trumbull, Mark. “Is Rising US Public Debt Sustainable?” The Christian Science Monitor. 2006.