Initially, the U.S. economy had some sort of plan as to how to go about their debts and to recover from it in the future. But when Covid struck, it wrecked all chaos in every section of the economy since the coronavirus brought an end to the longest economic expansion in U.S. history making it nearly impossible for the U.S. to come back from this mess. The most importance piece of recovery of debt for the U.S. is of consumer spending, which accounts for nearly 70% of the U.S. economy. Why this matters is because economies carrying a lot of debt generally have weaker recoveries. Businesses and consumers focus on cutting their liabilities during downturns rather than spending cash and spending is what an economy needs to rebound from. Right now, the borrowing of money along with low interest rates adds up to about $64 trillion in consumer, business and government debt which is more than triple the country’s GDP.
What people do not realize is that if the country keeps on going like this, it will lose the GDP growth that it has had for the past few years. There will come a time when the U.S. will be stuck in paying off its own debt, not being able to invest more in order to increase GDP. From student loans to credit cards, each factor plays a role in increasing debts. Businesses have also borrowed at a record pace in recent years, leading to high levels of corporate debt and during a recession, such a thing could force companies to slow spending and hiring to repay what they already owe which in turn would increase the unemployment rate and decrease the GDP due to decrease in consumer spending.
If such an inevitable situation does occur for the U.S., then the country would have to decrease all aspects of its spending including health care. The only good news is that federal debt is the least concern than during past recessions, due to low interest rates.
What do you guys think could be a solution for this? Do you think increased taxes and decreased government spending would be enough to come back from such a nightmare?
Shifflett, S. (2020, October 01). The U.S. Economy Was Laden With Debt Before Covid. That's Bad News for a Recovery. Retrieved October 01, 2020, from https://www.wsj.com/
There is not much to do with policy at this point. The economy is going to reach equilibrium on its own. Increasing taxes and decreasing government spending would help the cause. These policies are hard to put into place when there are so many disagreements right now with policy.
ReplyDeleteAnother interesting statistic that I believe should be looked at when speaking on government debt post covid, is the chart regarding government debt as a percentage of GDP. It is spiking tremendously right now and likely does not bode well for the near future.
ReplyDeleteUltimately, we are just in a bad situation that we will have to work our way out of like anything else. I agree with Libby that the economy will work itself out and that increasing taxes and decreasing government spending could help but I feel that is not the top priority right now. The last thing a candidate would want to say in the debate is that they are planning on raising taxes because that is not what people want to hear during these hard times even though it is the reality of the situation.
ReplyDeleteI think that increasing taxes would definitely help because we have been receiving tax cuts and have yet to see the expected gain in investment. Purposes an tax increase will definitely be a hard policy to try and pass but if passed will help chip away at some of the debt.
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