Any state has limited resources, which sets the framework for developing social, defense, and economic programs. Debt and loans allow states to implement various reforms without limiting current expenses. For the first time, the US national debt was fixed in 1790 since then and was taken for the new government (Mitchell et al. 149). Today, the US is the world’s largest debtor and also the largest economy, market, and investor. Public debt was not the single reason for this achievement, but it became one of the critical engines of the American economy.
The American economy is a unique phenomenon. It has almost unlimited creditor confidence and financial sovereignty, allowing the country to get and print money when needed. However, it is erroneous to think that there are no restrictions. An economy cannot consume and invest more than it produces and imports. Such tools must correct any imbalance between supply and demand as inflation, tax increases, and other processes that reduce purchasing power (Household et al. 100). Household debt can become a severe problem for the economy if exceeds their dead and accumulated wealth. Inflationary pressures and excessive debt are causing households to go bankrupt.
Signs of economic weakness are multiplying: declining personal incomes, falling production index, rising inflation and unemployment, and the rising cost of loans provoked by the Fed. The overall picture resembles the approach of a recession and has standard features with the Great Recession crisis (Agarwal and Varshneya 242). However, now the economy has a more significant margin of safety than in 2007-2008. Households are less indebted, and banks are more stable. Housing is also in better condition than in 2007-2008 when it was flooded with supply due to a speculative building boom.
Works Cited
Mitchell, William, L. Randall Wray, and Martin Watts. Macroeconomics. Bloomsbury Publishing, 2019.
Agarwal, Sumit, and Sandeep Varshneya. “Financial Crisis and the US Mortgage Markets — a Review.” Handbook of Real Estate and Macroeconomics, 2022, pp. 240-268, Web.