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Four Major Problems Faced by the US Economy Currently Based on Current Media Reports - Term Paper Example

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The economy of United States of America was performing very well at the start of the century but then went under deep recession in the year 2008 with the credit crunch and all the financial institutions seem to crumble at the same time. …
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Four Major Problems Faced by the US Economy Currently Based on Current Media Reports
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Four Major Problems Faced by the US Economy Currently Based on Current Media Reports

Download file to see previous pages... The 2008 financial crisis of United States affected the economies throughout the world and the macroeconomic factors were shaken up. The issue started with the debt crisis when the borrowers were unable to service their loans and thus faced difficulty in paying back the loans. This resulted in the housing market crisis when people ended up with bad loans which in turn resulted in people being deprived off their homes. The credit crunch also led to damage to investors confidence and investors and savers were unwilling to inject the money into the economy which resulted in shortage of money and cash, and this also resulted in the rise of unemployment. US Federal Debt/Deficit Since the financial crisis struck in the year 2008, the US debt has been very high. According to a recent news article, the United States debt is nearly as much as the total value of all its goods and services produced in the US during the financial year. CNBC reports that the total value of the US debt is $14.96 trillion which means that the United States external debt as a percentage of its GDP stand at 99.46% (CNBC). This is a very high figure and indeed a very dangerous one because high leverage of debt can be very risky. As a matter of fact, it is suggested that every person born in the United States has a debt of $47,664 in the very second it is born. The figure on the left shows that the public debt in the US will surpass the 17 trillion mark by the end of 2012, and indicates how the debts are constantly on the rise, which can be a very alarming situation for the people. (US Government Spending) Not just the rising debts, but the economy also faces the difficulty of constant budget deficits which means the outlay of the United States government is greater than the receipts and this means that the US government has to search for sources to raise the finances. Since the past three years, the US federal deficit has been around the $1300 billion mark. (US Government Spending) Issue of Raising Finance As mentioned above, United States economy has become highly leveraged and the debt to GDP percentage is nearly touching the 100 percent mark. This increases the riskiness of the economy and damages the confidence of investors and savers to inject their money into the economy. Investors ask for high returns to take on risky projects and some do not even settle for higher returns due to the fact the people are naturally risk averse. A credit rating agency has downgraded the credit rating of the United States and has gone down from AA+ to AA. Since the credit rating is going down, the investors and savers are reluctant to inject their money into the economy (Yahoo!). This creates a problem for the United States because the US government needs to borrow the money to cover up for the budget deficits they are facing each year. When the government has to inject money into the economy and it is unable to increase its budget receipts, then it has to look for other sources of money to cover that deficit and this source is usually to borrow money. With the credit rating going down, less number of savers is ready to save their money and thus it creates a shortage of money for the US government. Not just to finance the budget deficit, the government also faces difficulty in raising the money to service or repay their previous loans. Housing The housing bubble emerged in the United States in the year 2005 when the property prices started to rise and they rose at quite high rates. This increased the ...Download file to see next pagesRead More
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