Introduction
The United States debt is currently attracting attention because of the economic melt down in 2008. Enormous bailouts and rescue programs for falling companies led to an unprecedented increase in national debt. Despite disagreements about the mounting US debt others are convinced that it would bring huge risk. Some people claims that the national debt has something that was owed to its people and therefore there is nothing to be concerned about. However, economics experts believes that national debt may bring more economic catastrophe as debt rates is beginning to take up most of the GDP. As a result, the country is constantly being shaken by threats of financial instability. If not immediately addressed, this issue may lead to the same situation as what Greece is currently facing, if not properly handled it may somehow result to what Argentina had gone through which they are still trying to recover from up to this day. Budget deficit is also being attributed to large national debt; it works like a domino effect in the economic system. The have to come up with a more concrete plan that will work out to lessen if not to eliminate the amount of debt currently at hand.
Financial experts attributed the accumulation debt to non-discretionary spending; meaning the large portion of national debt must be limited and the manner of spending the money must be changed as well. But the problem is, the way of spending cannot be changed overnight and the only way to take control of it is to change existing laws. Another factor that affects national debt is the liabilities that are left unfunded. Currently, the United States has approximately $14 trillion of total debt and unfunded liabilities are still not included on that amount (Digg.com N.D.). But the question here is do people really understands the context of budget deficit and national debt? How they are affected by government’s financial affairs and decision and what the implications are? Obviously most people would agree that it is not their area of knowledge.
It is pretty much easy to understand, let’s take these questions in a smaller scale, like for example a household has a monthly steady income, from that income they get to pay for bills, groceries, gas and lastly debt repayments. When the household has too much debt to pay chances are they needed to adjust other expenditures like lesser budget allocation for groceries, limit the use of car to save gas and skip paying other bills? If the budget is smaller than the amount of expenditure there is now budget deficit. If this scenario happens, it is likely that the household will look for other cash source and the best way around is to use credit card to cover other expenses, what they are not aware of is to use a credit card is to add debt to their burden. That is a simple example but what about putting that same scenario to a grand scale like national debt and federal budget deficit, it is indeed a major headache to deal with.
Going back to national financial situation model which is the United States budget and deficit, one of the major challenges that the government has to overcome is to find a viable option that will work as a long term solution. Recently the White House made a projection that will determine how the Federal Budget Deficit will increase at a staggering $9 trillion by the year 2019. That projection also predicts that the national debt would also increase to $23 trillion by the same year and those figures is also an indication that the debt amount would eat up 76.5% out of the GDP (Kumar, Shailesh. August 26, 2009).
How will the country be able to raise that short amount of money considering that the debt is not stopping to hike? Will the government pursue another loan; will they print more money to cover the shortage or worst increase tax rates? Neither option are not the solution, in history, the marginal tax level an tax receipts was proven to stay constant at 19.5% of the GDP regardless of how the rates were raised. Besides, doing so will eventually backfire in the long run because higher tax suppresses GDP resulting to lower tax base and slow growth. Printing more money on the other hand can resolve the problem of outstanding debt by means of devaluation but consequences of that is lenders will eventually demand to be compensated for the risk of inflation. By lending money from its regular lenders like China, the problem may be solved but not for long, since China is seeing deterioration of the US balance sheet they will seek higher returns and interest rates will begin to rise as well to compensate lending risk.
Conclusions
Thinking about solutions to the rising national debt and budget deficit is certainly a head scratching task. Furthermore, throwing numbers around when debt and deficit is the subject of discussion is meaningless unless the key individuals try to see these numbers in relation to related numbers. Raising funds no matter where it would come from is a short term solution that most of the time begets bigger problems. First the government has to make accurate assessments first by means of measuring debt against the GDP instead of the national budget (Wieczorek, Mark. June 1, 2009). At the start non-discretionary spending was mentioned as one of the contributing factors of national debt increase. If only this uncontrolled spending can be prevented any government not just the United States would be able to maximize their national budget by allocating funds limited only to what budget can afford, going beyond that would entail shortages and short tern solutions like borrowing would only create a bigger problem in the long run.
References
Digg.com (N.D) United States National Debt & Budget Deficits Web Retrieved on February 21, 2012 from http://digg.com/newsbar/topnews/united_states_national_debt_budget_deficits_intellectual_takeout_ito
Kumar, Shailesh (August 26, 2009) Federal Budget Deficit and National Debt Projections Point to Uncertain US Economic Future Web Retrieved on February 21, 2012 from http://digg.com/newsbar/topnews/Federal_Budget_Deficit_and_National_Debt_Projections_Point_t
Wieczorek, Mark (June 1, 2009) United States Government's Budget & Debt (Obama Edition) Web Retrieved on February 21, 2012 from http://digg.com/newsbar/topnews/The_National_Budget_Debt_Deficit
