DEBT

U.S. Debt burden and its implications

U.S. Debt burden and its implications

Introduction

President Barack Obama secured his second term in the office by winning in the latest elections from his Republican counterpart. The news sent the stock indices in a downward spiral with S&P 500 losing 2%, after the first day of results and went further down, the next day, to test the threshold levels of 200 day moving average (Reuters, Nov. 7th 2012). This is an arguable effect of the ineptness of Congress to come to a unanimous agreement regarding tough economic decisions, as well as, anxieties of the so-called, “fiscal cliff” that is approaching its decision making time on the 31st of December 2012. So what is 'Fiscal Cliff'? It is a shorthand terminology defined on the basis of recently legitimized bill on austerity that U.S. faces over its massive debt burden. In the coming 45 days, if no plan is devised to balance the budget by Congress; which seems highly unlikely due to a majority of Republics in the Congress and their inability to reach bi-partisan agreements; almost $500 billion of spending cuts and tax increases will be initiated. Most experts believe this would induce U.S. back into recession (Niller, Nov. 7 2012)

Support

Fiscal Cliff

The bipartisan Tax Policy Centre estimates the average American family will have to pay an additional $3500 in taxes by April 15, 2013. Further, the federal government would chop 10% across-the-board spending cut, forcing it to lay off workers and cancel contracts to meet the defined targets, set in law (Heniff Jr et al, 2011). The range of jobs in almost every discipline of Government projects, be it a federal meat-inspector or a NASA rocket scientist, would face the harsh realities of austerity in practice. Further, Social Security, Medicare and Medicaid benefits will not be affected. Though, Medicaid reimbursement rates to doctors will go down. This means patients eventually paying more money, or they cannot be entitled to services. House speaker, John Boehner, is already trying to facilitate the delay in the triggers for fiscal cliff by asking for a six month extension in the eventual implementation of these austerity measures. (Niller, Nov. 7 2012). Specialists and Economists further believe that this trigger could also lead to jobless rate spiralling back to 9.1%. The levels previously at the epitome of the crisis in 2007-2009, further 0.5% would be chopped out of the growth projections of the country for the next fiscal year (Fox news, Nov. 7 2012)

Debt

So why has this debt increased to such amorphous levels that it has become an issue that needs ratification immediately? It is approximated that almost $47,495 is owed from each household in U.S., in settling their foreigndebts only, which is less than even one third the total debt burden (Jeffrey, Oct. 22, 2012). It is estimated that almost $5.43 trillion is owed to these foreign creditors. This spiral of debt is exponentially increasing. Consider, back in January 2009, foreign interests held a total of ...