Oct 3, 2018 in Economics

There probably cannot be any country that has never found itself in a state of deficit and having to owe some debt before. Indeed, the situation of indebtedness by countries arise out of the phenomenon of globalization and so it at times become very debatable to argue whether or not the deficits and debts of a particular country is a bad situation or not. This is to say that there is gradually being a system that presupposes that each country should depend on the other through global economic pacts and agreements (Jacksons, 2009). It, therefore, makes the act of borrowing very usual. But should indebtedness and deficits be encouraged? A country is said to be having a deficit if it spends more than it budgets for. Most situations of deficits come about because countries borrow too much than they can genuinely raise on their own. The amount of money borrowed and not paid is what is termed as a debt (McCarthy, 2005). The United States of America is one country that has a very huge country deficit. This is because the country borrows a lot. According information from the website of the Federal Budget, the current debt of the United States of America is 15.4 Trillion Dollars (2012). The same source explains that “reducing the deficit” is a meaningless sound bite. If the DEFICIT is any amount more than ZERO, we have to borrow more and the DEBT grows.” This, therefore, means that the relationship between the country’s deficit and its debt are is highly dependent and so as long as the country would want to achieve its budget target, borrowing would have to continue and by extension, keeping of deficit.

Does the fact that the need to meet demands on the national budget mean that the country should continue to wallow in indebtedness? The answer is no for indeed there is a way out of ensuring that there is no deficit and debt alike. This may sound practically impossible, but if anyone would believe that it can be theoretically possible, then all that needs to be done is having a proactive positive spirit that is directed towards making the impossible happen. Leaders in Congress continue to debt on ways of reducing the national deficit and debt, and in most cases their arguments sound very hopeful. What the country lacks perhaps is the will power to implement the proposals. Among some of the proposals that have come from congress in recent years is the federal debt ceiling (New York Times, 2012). There have also been issues of reducing the national budget size. The latter school of thought believes that if the budget is squared up with the ‘income’ or resources readily available to the country, the deficit will reduce. Other proposals from Congress include the need to raise internal fund generation mechanisms such as the increment of taxes to ensure that external debts are reduced, and the search for ways of nullifying debts diplomatically without having to pay off in any form of fiscal resource (McCarthy, 2005). Some of these have been proposals that the country have kept debating on through the National Congress. It is sad, however, that in most cases, the arguments take political twists rather than national focus.     

After Greece took up the rather controversial austerity measures to combat its debt and deficit situation, there are a number of countries, who are considering following in similar manner. In most countries, the debate on whether or not the country needs the Greek style austerity measures is only at the citizenry level, but in Canada the issue has risen to the national level, where Bronski (2012) reports Ontario legislature are to discuss the issue in the later part of February. So the question is whether the United States of America needs such an intervention. First, it is important to argue in terms of quantum. The CNN (2010) and Federal Budget (2012) put the Greece and United States of America national debts at $413.6 billion and $15.4 trillion respectively. In terms of value and size, the debt of the United States of America would be said to be larger than that of Greece. Meanwhile, viewing the debt from a point of quantum in relation to gross domestic product of the countries involved, it would be observed that the debt of Greece is nearly 120% of national economy (CNN, 2010). This is where the source of worry is. Even though the United States of America owes so much, the country has a very robust economy that ensures that there are balances in other sectors of the economy that cushion the economy from collapsing. The United States of America can also boast of national policy and agenda that are well-structured and formidable on ways of paying off the national debts in trenches. It will, therefore, be concluded that America’s debt does not pose as much threat to the country’s economy as that of Greece did. For this reason, America will not need the intervention used by Greece at this particular time.

Among the proposals by the Federal Congress on ways of reducing the national debt of the United States of America, one of them that stands out tall and is very popular is that of the federal debt ceiling policy. For several years, the United States of America has seen as lot debt ceilings. From year to year and from one administration to the other, the debt ceiling seems to be raising steeper and steeper. In general terms, the debt ceiling may be described as the amount of money that government can borrow to support the budget. This naturally means that there will not be the need for the debt ceiling if the budget does not have any deficits because it is only in situations where there are deficits that the need to borrow to make up for the deficit arises. With the peculiar instance of the 2011 United States debt ceiling crisis that led to the upgrading of the debt ceiling to an all time debt ceiling record of over 15 trillion dollars, I would say that I am not in favor of the move. I disagree with the proposal not just because it has made the United States of America have a large debt, but because of other accompanying factors that are very detrimental to the economy of the United States of America. First, the debt ceiling caused a situation, where, for the first time in many years, the debt of the United States exceeded 100% of the gross domestic product of the country. This is seen in the graph below by zFacts (2012).

Source: zFacts (2012).

This is a situation that makes the country’s economy highly vulnerable and puts it on the verge of collapse. This is because the gross domestic product of the country goes a long way in serving as an indicator in comparative global economic performance. It is not surprising, therefore, that with an ever increasing differential in Greece’s national debt against her gross domestic product, the country was faced with no other choice than to take austerity measures. One clear indication of how badly the debt ceiling affected the United States economy directly is how various stock exchanges lost values when the debt was raised. Jacksons identifies The NASDAQ and ASX as some of the losers. In the best of my opinion, therefore, there should have been ways of ensuring internal capitalization of funds rather than resorting to debt ceiling.

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