United
States of America Debt (US Debt)
The United States of America is heavily
indebted up to the tune of five trillion USD in foreign holdings. Lately politicians
openly talk about the next generation of Americans being the first generation
that will be worse off than the current generation for the first time in
American history, due to economic constrains such as high national debts, high
unemployment rate and low incomes. Looking at indications, a nation as powerful
as US being heavily indebted to BRICS countries was an unimaginable phenomenon
in the past.
The debt is extremely high and continues
to increase in an alarming pace, the focus of US is not on paying off the debt
but rather on creating more jobs, as they recently launched QE3 which is an
economical stimulant program from Federal Reserve.
Federal Reserve is printing money to be
loaned out to banks at a very low interest rate, consequence this money will be
released into the society which will stimulate and create economic growth that
will lead to job creation. Job creation increases tax revenue to the state,
revenue to the state will help finance the debt. Programs of such nature come
with dangers such as currency collapse i.e. increase in inflation rate which
will weaken the currency, it can also increase spending in the country which
will in return create high demand for consumer products and raw material, in
other words lead to an appreciation in prices of consumer products and raw
materials globally. This will have a great impact on the third world negatively
because they cannot stay immune to the economic turmoil neither can they afford
stimulus programs.
Consider this scenario, a farmer in Brazil
needs to invest in a new tractor for his sugarcane farm, increase in metal
price will increase the price of the tractor, fueling his new tractor also will
be at a high cost because the oil price has appreciated as well, that means
that the end product the sugar will be exported and sold at a much higher market
price thereby affecting the entire world and more specifically developing countries
that cannot afford economic stimulant programs.
The diagram below shows that stimulus
programs are not solution oriented approach and does not solve the problem in a
broader spectrum but rather a temporary fix.
During the period of QE1 and QE2 the graph
indicates a constant drop in unemployment rate but did not necessarily fix the economic
problem.
Recently American Analytic
Company Standard and Poor’s took down its AAA rating on US to an AA+ due to the
debt. The collapse of Lehman Brothers Bank is also a clear indication of a
weakening economy.
Reducing the debt should be the focal
point of the US and that will entail taking drastic and calculated measures. It
is very daring to take such herculean steps because that is not what the public
want to hear and going against the masses in a political arena is tantamount to
political suicide, staying in power mean the opinions and the ideas of the
public which most of the time could be wrong should be strongly considered,
majority of the population do not want to cut down on their high expenditure
nor pay high taxes, in the same way politician also do not want to compromise
their political advantages, even more delicate due to the new era of
globalization whereby decision in one country affects the other at the speed of
light.
Tactical and rational decisions are very crucial,
making difficult choices takes bravery without necessarily compromising core
values and that is what the politicians should put into practice.
If only the debt could be analyzed on
non-partisan political platform, it may help in taking away the blame game politicians
play and the focus will be on paying off the debt. Some people might argue that
paying off the debt will come with dangers such as collapse of the entire
economy however I believe that with calculated and well strategize measures that
can be avoided entirely.
In a nut shell efforts, intelligence, time
and substantial amount of money that politician put into campaigns should be
geared toward solving the debt problem for the good of the nation and the
future of the next generation of Americans to keep the “American dream”
alive.
