U.S. Must Manage Debt to Help the World's Economy

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The United States once had the largest economy in the entire world, and when there are problems with the US economy shock waves can be felt all over the world. The global economy is inter-connected on several levels due to the amount of international trade which occurs. If the United States does not find a way to manage its debt, or find a way to reduce the debt, it would increase the cost of finance for business because of the increase in interest rates. This could lead to high inflation. The stock market would also suffer badly as investors might feel that investing in the US market was too risky. This would cause the stock markets to fall as investors would take their money to other countries, or invest in gold; which many people have began to do. All this would be economically disastrous and probably usher in another bad recession (Sachs, 1989). The US economy is affected by its national debt which is the unresolved balance of government’s internal and external debts, or what the government owes in the in the form of issued Treasury bills, Notes and Bonds including debts to foreign banks and governments. 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. This is known as a deficit and it is assessed according to the country’s Gross Domestic Product (GDP).... ... middle of paper ... stronger position then they were during the recession. Another significant factor is that businesses are less dependent on the housing industry which triggered the recession in the first place. Most businesses restored to austerity measures when things were bad and have plenty of cash which could be used to increase employment for at least the initial impact when measure could be taken by businesses and the government to prevent another recession. This explains why the US debt affects the rest of the world (Whittred & Zimmer, 2009). The U.S. debt impacts the rest of the world because it is the country with the largest economy in the world. It is the largest country for imports and exports and for loaning money and providing aid to the rest of the world. Because of this, most countries in the world like to invest in the U.S. economy and also the other way around.
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