Current Macroeconomic Situation in the US
Challenges Before Economic of the United States
Current macroeconomic situation in the United States is not encouraging. Although, the government has undertaken numerous steps to rejuvenate the economy, generally, economy is not performing well. The United States has been experiencing huge economic challenges since 2007 economic downturn. Country’s national debt is increasing steadily. Experts caution that long-term fiscal situation in the US is unsustainable and if urgent measures are not taken, the future generation will be poor and heavily indebted. Contagion of the debt crisis in Greece and current Euro-zone economic impasse only prove that no economy is immune. Therefore, it is apparent that the United States must take urgent fiscal measures that will have long-term and short-term effects to improve the condition of economy and minimize the devastation that may accrue from massive national debt and unemployment (Fiscal Commission, 2010).
The United States has numerous economic problems. However, the biggest challenge has always been heavy government spending. Currently, it is estimated that the United States annual budget is $13.4 trillion. This figure represents 24% of the country’s gross domestic product (GDP). This means that the government spends 24% more than the value goods and services generated in the country annually. This situation forces the government to borrow extra revenue to fund its recurrent expenditure. As a result, federal debt has risen drastically and currently stands at 62% of the country’s GDP. Escalation of the country’s debt was attributed to the involvement in Iraq and Afghanistan wars together with the credit crunch (Guell, 2011).
The United Stated must undertake serious monetary and fiscal reforms to correct this situation. The first initiative must be directed to cut down federal spending on external matters like wars and other non-urgent engagements. This scenario will ensure that a substantial portion of federal revenue is channeled through local programs such as provision of quality education and healthcare. According to Malak (2000), pumping a substantial portion of resources into the local market will boost people’s spending power. Furthermore, the government must invest massive resources in development projects in the country. This will generate more employment opportunities for the population and boost government revenue through taxation. Focus should also be directed at reforming the taxation system and ensuring that more people are brought into taxation bracket. Currently, the federal government loses an estimated $5 billion annually due to unpaid taxes. This is attributed to the fact that the system only focuses on few individuals at the top of the pyramid. This portion of the population is heavily taxed. Experts estimate that middle class Americans are also heavily taxed contributing 15% of the country’s GDP.
Difficulties for Businesses
Escalating government debt has resulted to high interest rates in the market. This situation has made access to credit difficult for both businesses and individuals. This situation has curtailed economic growth by crowding private businesses and, therefore, denying people the chance to start businesses. Entrepreneurs and investors have no capital to fund innovation and create employment opportunities. The panacea to this crisis would be to craft policies that would limit government spending and increase per-capita GDP by 20% in five years. This will increase disposable income and, thus boost consumer spending. Deficit spending is mostly attributed to lack of proper planning and reactionary expenditure. The solution to this problem would be to create a pull of resources that would enable the government to respond to emergency issues such as wars and recessions without having to require funding from taxpayers. Moreover, this will limit government spending and ensure that the government borrows money at affordable interest rates if the need arises (Fiscal Commission, 2010).
Furthermore, the government must rethink its strategies and create conditions that would encourage foreign and domestic investment. Currently, almost 70% of products in the United States market are manufactured in China. This situation is denying many Americans chances of employment because most firms have shifted their production bases to China. America must borrow a leaf from China and create incentives that would attract investors. Currently, most corporations are either downsizing or retrenching their staff because of hash economic conditions in the country. Therefore, it is apparent that even in the near future, most people will loose their jobs. This will limit people’s power to spend and in the long run the government will lose revenue. Creating conditions that would encourage emergence of new businesses would create jobs and thus generate revenue for the government through taxation (Mcconnell, Brue, & Flynn, 2011).
In conclusion, the government must ensure that American businesses get fair opportunities by refraining from cheap imports from other countries such as China and Brazil. This will secure American investments and create employment opportunities for citizens. These measures will increase country’s GDP significantly, revive the economy, and propel the country out of current debt crisis. However, it must be noted that current level of national debt is detrimental to country’s future. The US must come up with concrete strategies to ensure that national debt is contained. The government must also rein on the banking sector by enacting laws that would streamline and promote transparence of financial services sector. Most economic problems in the United States and in Euro-zone have been created by the un-regulated banking sector. Streamlining financial services sector would secure the country from many economic plunders.