Reasons for Debt Crisis - Assignment Example

Reasons for Debt Crisis The ‘Moment of Truth report’ outlines the looming economic crisis that is bound to hit the American nation if certain policies are not changed. Debt is steadily increasing with most citizens unwilling to sacrifice their spending to guarantee sustainable growth of the country. This aspect jeopardizes the ability of future generations to acquire resources for their survival. Apart from this the report formulates proposals that could ensure change is implemented and appreciated by the American people. It calls for political unity and advocacy to come up with better ideas to change the current debt situation. Federal debt is one of the very few, but crucial reason that is leading to the looming fiscal crisis (The White House 7). Spending is increasingly rising at a tremendous rate leading to low revenue. Most Americans are spending tons of money to buy goods and services way above their value in the American market. Rather than cutting on such expenses and buying services that add value to their life, they are busy overspending on unnecessarily commodities. Subsequently, this leads to the borrowing of money by the federal government to close the gap and fill the difference. For example, the report suggests that in 2010, federal spending was 24 percent of the country’s GDP (The White House 11). Overspending is not the only reason behind the crisis but also the history of the American Nation suggests other key possibilities. The country was involved in two world wars, and the second one led to the rise of debt in the country. Economic instability can take years or even decades to fix, but it also takes patience and a number of active policies to curb. As much as the Second World War led to an economic crisis in the Nation poor economic, policies and the recent global economic meltdown are to blame. Poor prioritization on what the federal revenue should finance is also another cause of the crisis. Healthcare and social security are a significant aspect of the American economy and thus ought to be prioritized when it comes to being financed. Revenue should not fund the debts of buying unnecessary lavish spending of the government agencies or even their citizen. Necessary services and goods are the only debts that should be financed by the revenue. Tuition fees, transport, defense, energy and medical care are among the necessary services that should be prioritized. Rather than squeeze financing critical government sectors, policies should restrict the funding of payments that buy goods and services that have no value to the growth of America. Driving up the interest of all borrowers also minimizes private investment in the Nation. When private investment is curtailed due to such high interest then creating jobs and encouraging innovation in the country are also barred. When entrepreneurs find it hard to cope with such stringent economic demand, the Nations per capita GDP will further reduce. Additionally, due to the increasing debt of the American Nation, emergencies that require early response will simultaneously increase the likelihood of the debt to rise. Deficit borrowing is usually the most probable way of dealing with emergencies such as hurricanes, relief supplies, and wars. Henceforth, with the American Nation engaged in warfare with different Middle Eastern countries and the prevalent climate-related emergencies this means their deficit continues to increase. Solutions Offered by Author According to The White House, not only offers the causes of the crisis, but also illuminates on the right solutions that could be applied to curb the situation. The guiding principles mentioned in his book act as a foundation on the solutions gathered; hence, represent an important aspect of the American Nation. The solution is a six-part plan that is based on ensuring three core elements that make up a sustainable economy are realized. These include sound fiscal health, protecting the most vulnerable groups that make the economy, and promoting a feasible economic growth (The White House 21). The first and all so important part of the plan is to ensure that unscrupulous spending is minimized. Stringent fiscal restraints, therefore, need to be put to ensure the federal government reduces its debt over time. Unnecessary spending on low priority programs is some of the examples that need to reduce. This matter can be made possible through the formulation of policies at the congress level to ensure prioritization is realized and effective mechanisms to streamline government operations that require hefty financing. Tax reforms also offer an appropriate and long lasting solution to the problem faced. The problem of using money from the tax code domain not only increases deficit but also elevates the tax rates. Reforms should target the principles of equity, fairness, and integrity. Rather than favoring certain economic incentives, the code should ensure that the level ground is reached on all economic aspect of the economy. In addition, tax reforms that adhere to the reduction in the deficit are necessary. For example, savings gained from cutting tax expenditures should be dedicated to reducing the deficit. Healthcare programs are critical and challenging to manage and ensure spending is mitigated. The health care savings is growing at a tremendous rate and; hence, providing its sustainability is an effective solution. Since the savings of Medicare are vulnerable to fraud, increasing the authority of the government and funding will ensure such cases are minimized. Statutory authority offers transparency that can easily be audited thus ensuring the savings are protected. Ultimately, this will save an enormous sum of money that is at most times lost each year through fraud and increasing unnecessary deficit. Mandatory savings covers a number of sectors ranging from the military retirement funds to student tuition loans. Such savings usually become accessible to the individuals in certain particular situations and are frequently regulated. Although not major deficit drives, they should be properly managed to ensure proper savings disbursements and use. The author offers three solutions to curb mandatory savings spending. These include the protection of disadvantaged people, ending wasteful spending and disbursement of pensions as well as frequent consultation with the private sector. Private sectors, hence, could offer insightful ideas since it usually offers pension covers on their employees, and the government could important aspects from them. Social security is the foundation providing economic privileges for the Americans and should be highly managed. The savings from this domain is disbursed to millions of American citizens. The program is based on demographic data across to ensure fair and transparent pension schemes are formulated to serve the clients. Henceforth regular policy formulation of the program is essential due to the immense demographic changes witnessed in the country. The social security savings should also account for the different classes and standards of living in the Nation. It should address the poor by enhancing their minimum benefits as opposed to the rich. This process could also be applicable to the old and disabled. Additionally, with reference to the life expectancy of the country the relevant authorities should increase the retirement age to offer a balanced ratio of years in retirement to years in adulthood. Finally, the budgetary process reform should act as another solution to the crisis. The budget process is responsible for the disbursement of funds to all sectors of the federal government. Therefore, ensuring that the process is streamlined would cut deficit budgets brought about by these sectors. Inflation measuring is usually done by the budget sector and should be done in an accurate manner. Chain Consumer Price Index ensures that the consumers use money efficiently by identifying a cheaper alternative to the commodity they want to buy. The budget committee can also come up with a process aimed at stabilizing debts and keep the nation on track to recovery. Budget concepts used by the budgetary sector could be reformed or changed to use ones that favor the market and economy of the country. Why the Solutions Would Work All the above solutions can go a long way towards bringing stability, and if well managed they will certainly do so. These solutions will work since they are based on certain rules, values, and principles, which adhere to business certainty and nationalistic integrity. The solutions offered are based on principles that enhance their effectiveness and efficiency towards alleviating the problem. The solutions are people centered. An economic crisis hits every person in a given country. The recent economic meltdown witnessed in 2008 affected the wealthy, middle-class families and the poor. The wealthy persons such as business entrepreneurs were worst hit. An analysis of the solutions offered tries to touch on the different classes in the American society and how they could help or be controlled to curb increasing economic crisis. It is also clear that the unprivileged or most vulnerable society members are also included in the different solutions. These include the old, disabled and poverty-stricken. The solutions provided illuminate on different ways such members in the society could be guided out of debt and help the federal government reduce its debt. Another important aspect that makes the solutions feasible is the neutrality of political motives. The solutions call for the merger of political parties to ensure effective policies are formulated for the betterment of the Nations economy. The problem faced affects every individual and their future generations, henceforth, calls for a solution that brings each person together and shares their ideas on the way forward. Additionally, the likelihood of these solutions to be successful is the awareness of business certainty. The solutions offered are coordinated with business models, and best practices practiced all across the globe. The realization of the establishment of committees to oversee the implementation of these solutions is also another valid business and managerial concept. Finally, the realization of the need for change is crucial. The fact that the problem is identified call for the need of a solution. Solutions become feasible when the need for them arises and in this case they offer a sound outcome of the situation. Work Cited The White House,. National Commission on Fiscal Responsibility and Reforms: The Moment of Truth. 1st ed. Washington DC: The White House, 2010. Print. Read More