Efforts to Reduce the Budget Deficit Author’s Details: Institutional Affiliation: Efforts to Reduce the Budget Deficit It is now in the history books; the US debt crisis got even worse under the stewardship of the current regime to outstrip the gross domestic product (GDP) by over 100 percent in the year 2012, three years after surpassing the $1 trillion mark for the first time, all courtesy of a worldwide financial crunch that originated in our very own backyard (Thornton, 2012)…
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Indeed in line with the conventional analyses, the United States has been a clear example of how disruptive an increasing debt deficit is to the long-term economic growth. The national debt has not only suppressed the overall national savings, which, in effect, has reduced domestic investments, but has also increased the country’s borrowing abroad, as evident in the current account balances. It is undeniable that sustained national debts over the years have played a lead role in increasing interest rates, making internal borrowing for investments expensive, hence the capital from abroad to finance the federal budget for almost every government that has ever been in place. As a result of the alarming successive decreases in the national income due to the huge returns from the domestic capital stock accruing mostly to the foreigners, a trend that has now erected caps on the national productivity via a mounting unemployment, several statutory budget controls have been enacted by the congress to reduce the budget deficit, with most notable efforts beginning in the year 1985. After years of disagreements between Congress and the President [Regan, to be precise] on either tax increases or spending cuts as a way forward in halting the trend of deficit growth, members of Congress from both sides of the divide finally passed the Balanced Budget and Emergency Deficit Control Act of 1985 [popularly known as the Gramm-Rudman-Hollings Act ("GRH")]. Passed and approved by the President as “an important step towards rectifying decades of fiscal failure” GRH laid down procedures of eliminating the federal budget deficit that stood at $200 billion in 1986 by the year 1991 (Stith, 1988). GRH was essentially a binding enactment, enforced independent of the legislative budget process and the executive orders, which had failed in cutting down the total government spending and/or resisting political pressure for more government programs. The celebration particularly for President Reagan who had grander ambitions of reducing the share of the national resources consumed by the federal government was, however, short-lived, as the provisions of GRH was ruled a ‘violation of the principles of the separation of powers’ in 1986 by the Supreme Court in Bowsher v. Synar. To save efforts that went into making the GRH from complete collapse, the Congress went back to the drawing board, eliminating the constitutional defects identified by the Supreme Court eventually producing an amended version of GRH that moved automatic sequestration process from the hands of Comptroller General to the Office of Management and Budget (OMB) in the Office of the President (Stith, 1988). Accordingly, the deficits decreased in the subsequent years as a result of substantial cuts in spending accompanied by economic growth that ensured increased revenues. With the turbulent Bush administration in the 1990s, GRH proved insufficient in restricting the growth of the deficits. Congress, thus, reached an agreement with the regime allowing for a combination of “tax increases and caps on government spendin
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Organisation for Economic Co-operation and Development (OECD) has predicted that government debt will increase seriously by unmaintainable levels in advanced as well as emerging economies within next 25 years.
In order to measure export and import activity of each country, economists apply Balance of Payments (BOP). The goal of this paper is to give a brief understanding of what is the balance of payments and balance of payments deficit and to analyze what are the consequences of reducing a balance of payments deficit.
Our reference point, which is the government deficit, entails: deficit spending by various governments, there is primary deficit which are deficits arrived at after deductions of interest payments are deducted and finally we have both structural and cyclical deficits which are part and parcel of the public sector deficits (BBC 2010).
According to the essay, the deficit financing is good during crisis times to bring the economy out from stagnation but harmful if it is employed in a sustained basis year after year for the unproductive causes. Still, the underlying causes for which deficit budget is made certainly matter, regardless of the state of the economy.
The debt is in two forms. The first form is the debt that the citizens owe to the government. This category also comprises of foreign investors, foreign governments and businesses who bought notes, bonds and treasury bills in the United States. Understanding the debt has much significance to the Federal government as well as the residents of the United States.
It is imperative that the government’s deficit is mainly financed by borrowing from the public through selling of bonds. In addition it can b financed by borrowing from the central bank. There are diverse budgetary deficits, which include revenue, budgetary, fiscal, primary and monetized deficits (The Moment of Truth, 7).
The domestic demand has not taken the steep rising curve whereas fall in real interest rates, coupled by fall in income of households, strict credit conditions as well as ongoing fiscal consolidation can be thought of as other reasons. The rate of unemployment is on the rise and the policies adopted by the government to cut back spending is acting as salt to injuries.
Even though the same report pointed out that the budget deficit would reduce markedly from $1.1 trillion in 2012 to around $200 billion in 2022, representing 58 percent of the GDP, it painted a grim picture of the economy (Kogan, 2012). Notwithstanding, the present economic pressures would make it hard to reduce the deficit unless stern and sound policies and regulations are put in place.
None of us will ever forget what we were doing at that precise moment when we heard that the tower had been hit. It will stay etched in our minds forever. As the weeks and months passed, we saw the rubble being removed from where the towers once stood.