American Economic Crisis

The growing national deficit is a looming problem in the United States now more than ever. The national debt is constantly increasing and government spending is out of control. If these issues are not solved then they could spell disaster for the nation’s economy when the infamous debt ceiling is finally reached. Currently the national policy on the debt is to continue raising the debt limit until a solution is found that is agreeable between both parties in Congress. The two main issues of over spending and the constant raising of the debts ceiling by Congress can both be resolved by government spending reform, balancing the federal budget and initiating pro-growth policies in order to increase the government’s tax revenue.

Retrieved from: http://www.lilithezine.com/articles/politics/American-Recession.html Northern Arizona University, (2001). Methods of Data Collection. Retrieved from: http://www.prm.nau.edu/prm447/methods_of_data_collection_lesson.htm Sengupta Saptakee, (2010). Causes of Unemployment. Retrieved from: http://www.buzzle.com/articles/causes-of-unemployment.html Trading economics, (2011).

The roots of the financial crisis can be traced back to the property asset bubble in the US between 1997 and 2006. This asset bubble was enabled by a poorly regulated subprime mortgage industry and the assumption that property prices would continue to rise. The collapse of the property bubble and subsequent foreclosures led to many financial institutions suffering huge losses due to their exposure to the subprime market through a series of innovative and complex investment vehicles. While these investments carried extra risk, they also gave the opportunity for massive short term returns, and the move to these riskier and more complicated financial investments may have been facilitated by a ‘too big to fail’ mentality by many US financial institutions. The collapse of the property bubble and uncertainty in the markets led to a run by depositors and a sudden loss of funding for banks day to day activities.

Retrieved from EconomicsHelp.com: http://www.economicshelp.org/blog/236/recession/how-to-avoid-a-recession/ Sumner, S. (2011, FALL). Re-Targeting the Fed. Retrieved from National Affaris: http://www.nationalaffairs.com/publications/detail/re-targeting-the-fed Thoma, M. (2013, August 27). The Great Lesson from the Great Recession. Retrieved from The Fiscal Times: http://www.thefiscaltimes.com/Columns/2013/08/27/The-Great-Lesson-from-the-Great-Recession

The U.S. Trade Account deficit currently is the largest contributor to the U.S. Current Account deficit. This deficit is comprised of what United States citizens, businesses and government borrow from their foreign counterparts. It seems counter intuitive that one of the wealthiest developed countries in the world would need, or even want, to borrow from its trading partners. This paper will attempt to summarize the reasons for the large U.S. Current Account deficit, whether it is a problem, what can be done to reduce this deficit, and how some investors try to mitigate potential risk associated with a deficit. The United States Current Account deficit continues to rise as a share of GDP.

Retrieved November 2, 2008, from http://online.wsj.com/article/SB122191819568460053.html?mod=googlenews_wsj Stewart, Heather. IMF Says US Crisis is Largest Financial Shock Since Great Depression (2008). Guardian News. Retrieved November 2, 2008, from http://www.guardian.co.uk/business/2008/apr/09/useconomy.subprimecrisis Wallace, Michael. Wall Street Talks: What the Bailout Means (2008).

The Great Depression versus the Great Recession Since being founded, America became a capitalist society. Being a capitalist society obtains luxurious benefits and rather harsh consequences if gone bad. In a capitalist society people must buy products and spend money to keep the economy balanced, but once those people stop spending money, the economy goes off balance and the nation enters a recession. Once a recession drastically takes a downturn, the nation enters what is known as a depression. In 2008 America entered a recession and its consequences were severe enough for some people, such as President Barack Obama, to compare the recent crisis to the world’s darkest economic depression in history, the Great Depression.

Surprisingly, at one point the national debt was virtually zero, but in the midst of World War I, the debt rose to $1 billion in 1916. The debt peaked in 1919 at 26 billion dollars. The debt rose to this level solely because the United States needed to finance the war. Over the next ten years the debt slowly declined. In 1930, during the early stages of the Great Depression, the debt jumped up from $16 billion to $42 billion.

When the government has a high amount of debt it reduces government spending and budgeting. The less the government spends, the more unemployment levels rise. When unemployment levels rise the government has to spend more on welfare which is money spent with no productive aspects. This is a vicious cycle that is often repeated in many countries around the world because their currencies are linked with the US dollar. A country accumulates debt when the government’s expenditures exceed its income during a financial year.

Works Cited Bureau of Labor Statistics, U.S. Department of Labor, The Editor's Desk, Unemployment in December 2008 on the Internet at http://www.bls.gov/opub/ted/2009/jan/wk2/art02.htm (visited May 07, 2014). http://money.cnn.com/2009/01/15/real_estate/millions_in_foreclosure/ http://www.heritage.org/research/reports/2009/09/obama-to-spend-103-trillion-on-welfare-uncovering-the-full-cost-of-means-tested-welfare-or-aid-to-the-poor