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Fiscal Policy Paper Essay

The United States has been known as a powerhouse throughout the world and as having a good reputation with other countries. With the deficit, surplus and a high debt has caused the United States to lose some of its stature on an international level. The national debt has three parts concerning fiscal policies, prevailing economic conditions, public policy, and demographic changes. The United States has had annual deficits spending a lot more than the Department of Treasury has collected. This has occurred almost every year since the nation has been around. This is what has established the United States as a preeminent global power that it is right now. (“Financial Regulations”, 2012). If the deficit and debts continue in a downward spiral this will have an effect on the strength and status of the United States bargaining power. While the United States could faces inflation, on the international level it could cause the American dollar to depreciate and this would harm the United Stated international competitive power. If this happens the reputation of the United States would diminish on an international level as well.

When the United State is importing goods, an Italian clothing company can reap the benefits. If Italy’s economy is strong enough when the United States runs a trade deficit, an Italian clothing company will continue to grow and produce jobs for the people in Italy. It is opposite if the United States runs a trade surplus, this can cause an Italian clothing company to shut down because the company will not be producing the goods that the United States need. When there is a debt in the United States and a demand for Italian clothing company to import their products, the United States must sell off assets at a lower value to cover the demand of the products. (According to “Research and Data” 2011). If the United States does not have any assets to sell they will have to borrow the product from the company and pay them back at a later time. This will make their debt larger because they will have to pay back the debt plus interest on the total price. Today the unemployment rate is a serious problem in parts of our country. People who are unemployed are not paying taxes. Unemployment is a huge part of the deficit. A large amount of people go from employed to unemployment at a fast rate. People are losing their jobs for many reasons which push them to the unemployment line. Unemployment benefits are designed to help people until they can find employment. When jobs are lost, salaries stop, taxes are not being paid, and the government is paying out unemployment benefits to people who are not working.

There has to be some kind of solutions to help curve the unemployment problems. Creating training programs for high demand positions should be offered to unemployed clients to get them back to work. Most students rely on Student loans, Pell grants and any assistance they can get from the government to help them further their education. In February, there was a threatened sequester and education funds were affected. Education was one of the areas that was in the line of fire and was talks of cuts ensued. This would hurt many students because it would decide if they would be able to continue attending school. It would also hurt the universities because some had already experienced cuts within the system. President Obama spoke about funding for education and how important it is to continue. To keep the Pell Grants safe, other areas were targeted. The Leap grants, subsidized loans, Trio program, and Perkins loan were all at risk. It all comes down to the economy. Money has to be moved around and often causes problem for many. In the end students will see interest rates on loans rising and higher payment to repay after graduation. Taxpayers suffer from the debt and deficit because taxes are raised to offset the deficit and debt. If the debt is high concerns on how the debt is going to get paid grows. The debt is what owed by the federal government.

Since the government continues to borrow funds from the Social Security Trust Fund, future Social Security is in jeopardy. It’s predicted that over the next 20 years the social security fund will not have enough to cover the benefits of the baby boomers that will be ready to retire. These benefits will have to be paid so taxes will have to be raised and other government programs will have to be cut. With the future predication of more social security recipients it leaves fewer workers to pay into the system. Future social security and Medicare users depend on the surplus to fund their benefits. For years Social security had a huge surplus because it collected more in taxes than what was paid out. Beginning in 2010 Social Security started paying out more in benefits causing a need for concern. Raising taxes is one way to increase the social security fund. It is highly unlikely that Social Security and Medicare will be cut because both are funded by employees, employers and those self-employed (taxpayers), As long as people are working and paying taxes Medicare and Social Security will always have funding. It’s important to understand that a considerable part of the loss in U.S. manufacturing jobs has not just been a story of higher productivity leading to fewer jobs—as was the case with the transformation of the U.S. agricultural sector over the last century. It’s been more a story of decline in output due to a loss of international competitiveness.

This is why the decline of U.S. manufacturing merits a serious policy response. Look at Detroit for example the decline of car industry and factory jobs have been in constant decline because of the way this country sends jobs to other countries for cheaper labor. So in essence why would a foreign country buy cars from the U.S. when they know what it cost to make them? And more than likely we are in debt to them which would in part make us sell cheaper than what we want just because of it. The debt affects the deficit in three ways. First, the debt actually gives a better indication of the true deficit each year. You can more accurately gauge the deficit by comparing each year’s debt to last year’s debt. That is because the budget deficit, as reported in each year’s budget, does not include the amount owed to the Social Security Fund.

However, this is a debt that will need to be repaid one day, and so the amount borrowed from it is a more accurate description of each year’s government liabilities than the reported budget deficit. As one can imagine economic production and growth and what GDP represents, has a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labor to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It’s not hard to understand why a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession. ?

St. Louise Federal Reserve, Deficit, Debts and Trust Funds, August 2006)
http://www.investopedia.com/articles/ useconomy.about.com Fiscal Policy Financial Regulations. (2012). Retrieved from http://www.cfr.org research and data. (2011). Retrieved from http://www.phil.frb.org Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin.

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