Both the Republicans and President Obama in the Congress promise action on the massive debt and deficit related problems which finally puts the debate right down to the specifics. The authors Jean Johnson and Scott Bittle, in the article Where Does the Money Go? Your Guided Tour to the Federal Budget Crisis, offer a bird’s eye view on what is at stake for the entrepreneurs.
The issue of solving the budget is important as any major economic trouble. This is because the debt problem is so large that living with it poses lots of threats to the country. With the current projections playing out, the national debt is likely to grow from 60% GDP to 100%.
The debt is estimated to close up to 200% GDP by 2030. There is plenty of controversy regarding the extent of national debt before it becomes a problem, although according to most of the economists the projections are headed towards the danger levels. In the worst possible scenario, the international lenders will start losing confidence in the ability of the country for meeting its obligations. It can lead to problems such as debt crises such as those which have been previously encountered by Ireland and Greece. Economists have warned that the country should stop feeling immune.
Is there a Way to Avoid the Problem?
A debt crisis is what can wreak havoc on the lives of the people and if that happens in the largest economy of the world, entrepreneurs are in for doom. Even if businessmen have sound ideas and unique planning, they are likely to get sucked into the funnel. The total global economy can thus be in disarray. One advantage which the economy has is that investors of the world still see the country which is one of the best places where they can harbor their money.
This means that there is still time to make decisions regarding how the budget can be taken towards a more sustainable way. While it will take years in solving the problems, it is important to make the investors feel that the economists are doing something to curb the situation which will be a big encouragement for the investors. It will make the investors buy the bonds.
Other than worrying about the debt crisis, there are certain other bad scenarios which can be more likely instead of a debt crisis. These problems are likely to cause damage in the long run, instead of creating sudden crashes. One of the risks is that the government borrowing will overpower private investment thus reducing the amount of money that is available for expansion and startup businesses. This is not good for commercial enterprises which are aiming to expand.
Another risk is that the government will face higher fixed costs overwhelming the rest of its balance sheet. That for the federal government means that there is interest on debt and this especially goes for the health care programs such as Medicaid and Medicare. According to the government auditors, within 10 years, the costs can suck up 90 cents out of every dollar in terms of revenue. That does not leave much room for betterment of the infrastructure of the country, rebuilding of science and math education or other investments which aid in market competition.
Status of the Interest Rates
Another danger which is posed by the procrastination of the problem is the higher rates of interest. If there is a problem in selling the Treasury bond (which helps in the citizens’ borrowing money), the rates of interest will increase and the effects of this will reverberate throughout the economy.
The same can be said of the tax hikes which to balance the budget will be required. Hence, there should be something of both. The numbers will be so high that it will have red ink flowing even with the wars in Afghanistan and Iraq and skipping of the Wall Street stimulus.
The answer lies in compromise as there are too many practical solutions on the table. The problem lies in getting the politicos to make a move from high flown speech into action which will put the economy and the country in stability.
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