The following paper talks in length about the US National Debt and how the entitlements play an important role in the current crises. The effects of the debt on these entitlement programs and the borrowing of foreign money in order to sustain are discussed in the paper.
Money is borrowed by the federal government by issues debts wherein marketable securities from the treasury notes, bonds, treasury bills etc. are sold to other federal government agencies, businesses, individuals as well as businesses, people and government from other countries. When the money is returned back, an interest is paid for using the borrowed money. This borrowing of money by the federal government is termed as public debt. Public debt increases or decreases based on the annual unified budget deficit or surplus. (“O’Neill P.”, 2009)
The continuing economic recession faced by the US has forced the federal government to take drastic steps in order to overcome the crisis. To resolve these crises debts were a way out, the debts may solve the problem for the moment, but poses much severe after effects. US has a public debt of nearly $11 trillion which makes up for 80% of the Gross Domestic Product (GDP). In order to resolve the issue, government raised the interest rates much high due to which the economic activities slowed down at first and at a later stage they stopped completely. The $11 trillion acknowledged debt is not just the problem in this case because there is $53 trillion of unfunded liabilities which most Americans are unaware. An important part of which is Medicare and Social Security. (“Walker D.”, 2009)
People meeting certain requirements are eligible for benefits and thus they are known as entitlements which include Social Security, Medicare and Medicaid. These entitlement expenditures are funded by the congressional appropriations and are thus mandatory spending although most Americans pay taxes for these benefits throughout their employed life. The baby boomers are nearing retirement thus there is an increase those receiving benefits as compared to the working population.
Thus the mandatory spending have an increased share in the GDP. Per-person costs also majorly affect these programs as they are expected to increase at a higher rate than the economy. Thus the combination of demographics along with the per capita rate increase has caused major deficit to these programs and is expected to rise throughout the century. To overcome this problem, major reforms in the form of raising taxes and cuts in discretionary programs are mandatory as the federal government will then be unable to pay its obligations thus causing rising inflation.(“ Walker D.”, 2009)
Many economists have come up with varied proposals that can help US out of its current state. One such suggestion is to fix the Social Security problem. Not only is the national debt a matter of concern, the liabilities and the unfunded assurances for Social Security, Medicare and Medicaid is a much grave concern. The federal financial hole exceeds the total net worth of all Americans, which proves to be of much concern (“O’Neill P.”, 2009). Even though 75% of the debt is financed by foreign lenders, savings and taxes are much needed in order to overcome the financial hole. Economists suggest ways to fix the Social Security issue by making no changes to the security benefits of those nearing retirement or are already retired as it wouldn’t be politically feasible. On the other hand security policy of the younger generation may be reviewed by increasing the retirement age, as well as the early retirement age and strengthen the benefits for those under the poverty line (“Walker D.”, 2009). Lastly reduction in replacement rate for middle and upper middle class will aide in giving them just the amount that is adequate. Such a proposal in Social Security aims to drop the national debt through a well developed approach that is sustainable and secure.
References
O’Neill P. (2009). Ten Trillion and Counting. 24 March 2009. Retrieved from http://www.pbs.org/wgbh/pages/frontline/tentrillion/interviews/oneill.html
Walker D. (2009). Ten Trillion and Counting. 24 March 2009. Retrieved from http://www.pbs.org/wgbh/pages/frontline/tentrillion/interviews/walker.html
Walker D. (2009). Fixing Social Security. 24 March 2009. Retrieved from http://www.pbs.org/wgbh/pages/frontline/tentrillion/themes/socialsecurity.html
