Tuesday, August 2, 2011

US ECONOMIC ARMAGEDDON



Happy ending but pains way ahead:  
Finally the debt ceiling was increased by $2.1 trillion resulting new limit for US debt to $16.1 trillion. It has been taken by the world media as a high voltage of drama being played between the Democrats and the Republican. In fact according to me this drama was the beginning of the bigger picture which will be released in the due course of the time. The 2012 presidential and congressional elections which will be held will be fought over spending cuts and job creation. It seems that the US economy will be now on the political game rather on economic revival game which the required to be played at the moment. Both the Democrats and the Republicans are internally divided and radicalized, with centrists in both parties increasingly isolated hence the high voltage game is yet to begin for US economy along the world economy.

Politics beyond Economics
Now one question in mind will expenditure cut and taxes increase will lead to US economic growth. We get the answer in history of US economy. In 1980, Ronald Reagan won power by promising to cut taxes and increase defence spending — a combination that meant he would have to borrow billions. And by the time he left office, the U.S. had gone from being the world’s biggest creditor to the world’s biggest debtor, its total debt having surged from $997billion to $2.85trillion.

The downgrading of the US bonds and other money market instruments has already created huge damage to the fragile economy of US.  He downgrading will lead to a further capital outflow from US money markets, which are an important source of short-term funding for many businesses and financial institutions around the world. Increasing the debt limit will only increase more hard days for the US economy to come out of the crisis.

What’s is found till now from the new debt increase policy being adopted is that the debt ceiling will rise by about US$2.1 trillion, in two stages until 2013, so beyond the 2012 presidential campaign - key Democrat demands that  In exchange for these concessions, Republicans have successfully pressed for spending cuts amounting to at least US$2.5 trillion over 10 years, of which about US$1 trillion are agreed. The remaining US$1.5 trillion will be the subject of a new bipartisan Congressional committee.
Failure by that committee to agree later this year would trigger automatic cuts in programme defended by Democrats and Republicans respectively - social security and military expenditure. Under the framework negotiated by Congress, approximately half of those cuts would be in defence spending and the other half in domestic programmes such as farm subsidies or discretionary spending (including Medicare).Cutting down expenditures was required since Us have been active in defence spending from the time of Mr.Bush who increased the debt limit of US to $11 trillion before quitting his office.

After that another round of Disaster control plans were run which included a $700 billion bank bailout, a $700 billion stimulus program, a couple of trillion in “quantitative easing,” that is, in debt monetization. It was not debt monetizing, its was printing dollar to pay the bill of US economy. Federal Reserve’s balance sheet had expanded by trillions of dollars as the Fed purchased troubled mortgage bonds and derivatives in its effort to keep the financial system solvent and functioning. According to the Government Accountability Office’s audit of the Federal Reserve released by Senator Bernie Sanders, the Federal Reserve provided secret loans to US and foreign banks totaling $16.1 trillion, a sum larger than US Gross Domestic Product (GDP).

The cooked numbers:
The US economies have cooked the estimations number for its economy. For example its has hiked its GDP growth numbers spooking speculation around the world economy about its growth where as the real growth remains subdued. Even while calculating the unemployment number, US economy was propagating that the unemployment numbers stood at 9.2% where its has overlooked the number being created by Discouraged Labors.  A discouraged worker is a person who has ceased looking for a job, because there are no jobs to be found. A discouraged worker is not considered to be in the work force and is not counted among the U.3 unemployed. The U3 is today’s official unemployment rate. It represents those people in the total civilian work force who are unemployed and still seeking to be employed. It is a number that is less than half as high as the unemployment number that was used until after President Clinton took office, and it woefully under reports the serious problem in the present U.S. job market. It may surprise you to learn that these are not the actual unemployment numbers though. In fact, when unemployment is measured according to the formula that was used when President Bill Clinton took office, it is actually around 20% Today’s formula only counts a narrow segment of the non working population as unemployed.
More over the new tension of Republican and Democrats are going to make the policy decisions of US more critical and more difficult in the coming days. The world economy should now try to make itself very much clear that US economy is not going to provide any easy steps for the speculators to breed their thoughts.

Now what we have way ahead?
The tussles between policy frame work in US economy will remain as a high voltage Multiplex Movie. The debt will keep on increasing despite of spending cuts since the real engines of US economy that is manufacturing is sitting idle. It is not focusing or neither having intention to expand or start up its manufacturing in US .Rather they are more inclined to open shops in emerging economies. Can any one figure out what will be the utility of cutting down expenditures when the US corporate is having a stock pile of cash to the tune of more than $2 trillion. But where is the money heading if manufacturing is not happening in US. Manufacturing is taking place but Its being drifted towards emerging economies where shops are being opened like India, China and Indonesia.
Upcoming numbers and any positive cues from Us will be hard to be taken as now is teems that 2012 presidential elections will drive cooked numbers from the US economy leading to a catastrophic speculation fault from the world economic speculators.
Some questions for my readers?
  • I have some astonishing number to be provide to you to think in gamut to finish my article.
  • A U.S. Treasury Department reported that U.S. debt will rise to $19.6 trillion by 2015 and if the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.
  • Will this hike of Debt limit will suffice in the future.
 While all these are highly demanded question in the mind and also highly un-answered across the world since US economy mind set have been changed to skip hard work and look for shortcuts to make any thing overnight. One should not forget that from the time of late 1970 US economy has learnt to live on debt and borrowed capital without the thought of how to repay back. Since this repayment mind set needs no economist it needs physiologist to change the mind of America.

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