Main Reasons of Crisis and The Moment of Truth - Coursework Example

Download file to see previous pages Therefore, the existing gap between spending and revenue, representing the budget deficit, was exactly under 9% of the GDP.
Another reason contributing to the debt crisis is the increased expenditures on wars and the slew fiscally irresponsible policies, accompanied by the deep economic downtime. In this case, the nation has arrived at ‘moment of truth’ of which it is not even justified to blame the political party. There are expectations that the economy will help towards improving the deficit situation in the short run basing on the fact that revenues will rise upon people going back to work. In this case, money that is subject to spend on the social safety net will most likely decline since fewer people will be forced into relying on it. Even though the economy might recover, projections indicate that federal spending will most likely increase faster than the revenues. In this case, the government will have no other option but to continue borrowing money for expenditure.
Another factor contributing to the debt crisis is the cost of healthcare. All of it results from the retirement of baby boomers over the long run, contributing to the continuous growth of health care costs. Projections indicate that by 2025, the revenue generated will only be able to finance the interest payments, Medicare, Medicaid, and Social Security. All other federal government activities, starting from the national defense and homeland security, extending to the transport and energy sector will have to rely on the borrowed money when doing payments for services. At this time, the debt of which the public will be outstripping the entire American economy, expected to grow to over 185% of the GDP by the projected period of 2035. Similarly, projections indicate that interest on debt will rise to reach nearly $1 trillion by 2020. Encountering these mandatory payments, which do not buy goods or services, will end up squeezing out on the funding of all other priorities. ...Download file to see next pagesRead More