Martha – National debt – Its pernicious effects on the US economy
Thanks to Martha – LauraThe debt problems of US may seem intangible at more than $14 trillion and it is a large number which is difficult to conceptualize. But, if you do not check your debt problems on time, this figure will affect your daily lives to a great extent by forcing you to pay exorbitantly high interest rate on your outstanding debts and thus a slow economy. You may choose suitable free debt consolidation programs to reduce your debt burden. The $14 trillion seems to grow at a staggering speed of $58,000 more every second. Richard DeKaser, the deputy chief economist at The Parthenon Group said that this seems to be truly large and they are talking about 9-10 percent of GDP.
High rate of interest
In the past years, the customers have enjoyed paying low interest rate to the federal government’s advantage. But, according to the experts, the comfort of paying low interest rate will not last for a long time. The US people believe on foreign investment to finance more than 50 percent of its debt. Most experts agree that the investors will carry purchasing U.S. Treasury bonds and they are unlikely to do so on generous terms.
Lynn Reaser, the chief economist at Point Loma Nazarene University’s Fermanian Business & Economic Institute said that it may be much tougher to fund their debt at least for sometime. Thus, you will see an economic or market solution which would mean paying high interest rate or low price of dollar or the combination of both. The probability for future growth can be less, and, as such, you could see a slow growth or a decline in the living standard.
The customers will get affected when the interest rate will increase. As such, the interest rates on U.S. Treasury bonds serve as the yardstick for many consumer loan products which consists of car or mortgage loans, student loans and credit card debts. As interest rates rise up to attract Treasury bond investors, so the interest rates will also increase for the consumers. Reena Aggarwal, the Georgetown finance professor said that if you are thinking that Fed can hold the interest rates low for a long time period, then it is not the case. She also said that Fed will not be able to control the interest rate after sometime. The US market seems to increase the interest rate with time.
Slow economic progress and weak condition of job market
If the rate of interest rises up, a huge portion of the government’s budget will go toward making the interest payments, leaving some dollars for other types of spending such as building roads or providing tax incentives for small businesses. It has been said by Russ Koesterich, the author of The Ten Trillion Dollar Gamble and iShares global chief investment strategist that high debt is a heave on economic growth. The government is rousing the economy by spending lots of money. On becoming more expensive, they will have to reduce the benefits and lessen transfer payments. This will slow down the US economy and the job market further.
Koesterich said that the spending of the government accounts for a quarter of economic activity at present seems to be largest footprint the government has in decades. Koesterich also said that twenty cents from every dollar has come from the government. However, if the government cannot afford to do that, it will have a negative effect on the customers.
High tax being charged
It has been said by Koesterich that the US people have voted to enjoy more benefits than what they actually wish to pay in the past years. According to him, the economic effects would be less destructive if the government has to deal with the scarcity by reducing on spending habits. In such a situation, you may have to improve some long term programs like Medicare and Social Security.
However, many experts argued that reducing the spending habits seem to be only half the solution to your debt problems. The government will have to think to lift up more revenue which means charging high tax at some point. The Americans have reached the point where the economy has become stable and without addressing the debt problem, it will end up being a big problem. High tax may hit the customers in 2012 when the tax cuts may expire and the debate will begin in Washington as how to deal with the debt problems.
High rate of inflation
Huge public spending by the federal government during financial burden has put pressure on demand and supply dynamics but has to flash meaningful inflation in large part due to continuous weakness of the spending of the customers. Koesterich said that the public demand seems to crowd out private demand. It is just like spending too much money to buy few goods.
But when demand comes back from the private sector, extra competition will rise for a restricted supply of goods which, in turn, will increase the price of the goods. Inflation is mainly harmful for the customers because it decreases purchasing capacity and may lead to low living standard. Although this may seem like a doomsday scene, the experts have said that the fallout from persistently high public debt is more a risk than a threat.
Thus, poor job market, high interest rate, huge tax and high inflation are some of the major problems that the US people are facing in this tough economy.
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