An Overview to the State of Usa Government Financials

April 9th, 2010 admin Posted in obama healthcare congress Comments Off

The United States of America began to feel the effects of this financial crisis about September 2008, though some believe that signs were there earlier.

This crisis developed from decisions and actions in various areas over a long period.

This financial crisis has already had serious effects on many companies, families and individuals.

It is acknowledged as the most significant problem with the international financial system for many years. But, no-one can be certain of how long or drastic the crisis will become because of the interlocking demands and reactions of the various countries, governments and major corporate players.

Just a few months ago, the Iraq war held precedence over all other news and the Administration put major efforts into possible improvements with the Iraq war and the Afghanistan conflict.

Right now, no other subject gets the coverage which is, naturally, given to the financial turmoil of the United States of America.

This crisis has developed during the period of a fiscally responsible and conservative Republican domination in Washington.

State debt assumes enormous proportions once it goes out of control.

It is not that a government does not have any debt. Debt is a part of every government’s financial affairs. But, huge amounts of debt are definitely a matter of concern.

The national debt was about $5.7 trillion in January 2001 when President George Bush took office.

The national debt presently stands around $10 trillion. It has grown by more than $500 billion each year since the fiscal year 2003.

The $700 billion government bailout could cause the national debt to exceed $11 trillion, perhaps by the time that the new President Obama comes into office.

This could surely mean that the new President and government would start under the burden of an immense long-term debt.

The national debt ceiling is presently at $10.6 trillion. Congress Treasury Secretary wants it to be raised to $11.3 trillion to clear debts arising out of massive borrowing that are believed essential to deal with the current financial crisis.

This could translate into a national debt of around $37,000 each for every man, woman and child in the United States.

What Factors Led to the Current Situation?

There was not just one thing which caused the present crisis to develop. Even the most reputable experts have differing views about the main causes.

Most accept that a major factor was uncontrolled borrowing from foreign central banks and other world nations.

Many say that the U.S.A. Federal Government has continually borrowed to maintain operational expenses.

The funds have been aimed at spending on many areas, including:

Federal Medicare prescription benefits

Oil prices (that tripled since the start of Iraq war)

Military campaigns and many other programs.

As I am writing this, the United States finances are under severe stress.

The US dollar has lost significant value.

Some fear that there may be negative effects from some of the quickly prepared measures that are being used to try to remedy various aspects of the crisis.

While governments can introduce measures to reduce some of the pressure on institutions such as banks etc., their ability to provide quick help to individuals and families in a major crisis like this is more limited.

Savings in banks and with other institutions may be affected while we wait for the new measures to have significant effect. Some people say that the federal government’s actions to protect the banks may add significantly to inflation.

The present financial crisis is not something out of the blue. A few people predicted aspects of the crisis well in advance but the “common wisdom” of many experts was that these suggestions were over-stated.

The recent surge in America’s debt has outpaced technology – the clock which shows a record of the country’s national debt has run out of digits! This clock, National Debt Clock, shows total debt owed by the government of the United States of America. It was first installed at Times Square in 1989 by real estate developer Seymour Durst. Mr. Durst wanted the public to be informed about the nation’s overall debt. It was $2.7 trillion at that time.

Seymour died in 1995 and the clock is now the property of his son, Douglas Durst.

This debt clock has provisions to show only up to 9,999,999,999,999 dollars after the dollar sign. Once the debt level reached the 10-trillion dollar level, it could not easily be represented on the clock. The operator of National Debt Clock, The Durst Organization, then dropped the dollar sign in the total figure. Presently, I believe that arrangements are being made to create a replacement for the clock with two additional digits. This new 15-digit clock would make it possible to accommodate and display up to a quadrillion (a million, billion) dollars of debt in addition to a dollar sign. However, this clock is not expected to be in place sometime during next year.

A common view of many experts is that one of the best strategies for the federal government to reduce the current financial problems requires that it borrow many hundreds of billions of dollars.

Of course, this borrowing is very likely to translate into higher taxes for the average taxpayer. The justification for this would be so that expected large increases in Social Security costs, healthcare programs for the elderly and Medicare could be dealt with.

The people that support this view say that another possible justification for the amount of increase in taxes could be that the extra government revenue would be, in part, a possible protection for the American economy from another recession.

They estimate that a minimum of two years of government borrowing would probably be required for the extra reserves to reach a suitable level.

It is likely that the rise and fall of deficit and debt might be very sharp over the next period.

It is very likely that the new government will have a major task to steer our economy through the troubled waters.

But, the status quo and historic policies cannot be maintained because it would be too risky for the economy. Too much dependence on continual increase of deficits because of increasing government borrowing could cause a lack of capital available for companies as investors might feel safer buying government-owned securities rather than privately-owned securities.

People that support this view claim that the debt market might be flooded with Treasury bills and other US securities. That could mean that the government would have to pay higher interest to attract enough buyers.

Higher federal interest rates could help to push interest rates of mortgages and other similar loans higher.

This could be expected to have some dampening effect on overall economic growth.

The government would depend in part on foreign investors. It might also mean a cut in spending along with the increase in tax rates.

Most accept that some tax increases are probably inevitable. The bailout could cause some increase in deficit levels and that could lower expectations for growth of the gross domestic product.

So, the government could have to draw in more revenue primarily from taxes.

There seems to be little that can be done to prevent this occurring to some degree.

Some analysts also predict that a growing deficit is on its way.

Although we cannot, at this stage, predict how long it could take America to get through this financial crisis, you can plan how you can make the best possible future for yourself and those close to you.

The government will, at some point, be able to sell assets like mortgage-backed securities held by financial firms and some bank shares it purchases during the current bailout, and then be able to use the money to recover some of the huge costs it has incurred. This practice has yielded positive results in similar bailouts undertaken by other countries like Sweden which have sometimes been able to recover up to two-thirds of their initial costs.

You can discount the extreme claims that the present crisis could lead to bankruptcy of the federal government.

Given the cooperation of all the stakeholders, there are signs that a new resurgence, more growth and a chance to rebuild our financial economy to a higher level than before are possible.

Our government must do its best to chart a new growth plan and prevent corruption and planning defects right at the start.

A lot can be learned from past mistakes.

This could offer an excellent opportunity to produce and follow a better plan to rebuild our future and the future of America.

Make the most of the current situation and educate yourself on how you can survive the current debt crisis with this detailed e-book, Surviving the Debt Crisis.

Craig Maugham

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