Trade Deficit In The United States

This growth in national debt has blunt consequences on inflation, interest rates and growing economy. Foreign control of large amounts of government debt means that the taxes will have to be raised to repay debt and percentage owned to overseas governments which is not acceptable. Assuming that trade deficiency also exists it will lead to depreciation of dollar which effect its position as a reserve currency, and if during this process any new currency emerge as a replacement of reserve currency, higher interest rates will be required to sell the debt to foreign countries (Inflation). Raised interest rates have a negative impact on the economy and high accumulation of debts leads to high interest rates (Spending). Hence the economy suffers. This means that the funds for government programs like Social Security and Medicare are not enough (Economic Progress Under Obama). Another consequence of high national debt is the reduced flexibility in fiscal policy (Spending).

Many contend that deficit reduction is imperative to our prosperity and economic recovery. The deficit is blamed for a variety of economic ills including high interest rates, unemployment, the trade deficit, the low rate of national saving and low productivity growth (Shaviro, 1997).

Any person struggling through difficult times will seek out other means of financial support including borrowing money that may be harder to pay back in the future. The United States will often follow a similar path and spend more money than it earns. Deficit spending in the United States comes with some advantages, disadvantages, and strong criticism. Some feel deficit spending is good for getting the economy back in motion while others contend it does nothing for the economy. The effects of deficit spending are carefully examined to determine if the United States is improving or degrading the future of the economy.

There are a number of both long and short term effects that a large budget deficit/debt can have on an economy. First, there will be increased borrowing, meaning the government will need to borrow from the private sector (Pettinger, 2014). Second, there will be higher debt interests payments, meaning selling bonds will increase the national debt, leaving future generations to have to pay higher taxes (Pettinger, 2014). Third, an increase in aggregate demand will occur, which could potentially cause a higher Real GDP and inflation to

They now exhibit a challenge in terms of debt, deficit and surplus. The national debt and deficit possess distinct definitions. The budget is the amount of money that the government works with within a given fiscal year and allocates to the different programs. The deficit is when expenditures exceed revenue and is added to the debt at the end of the year. In the last ten years we have experienced enormous deficits that may communicate to the international community that the United States might have trouble producing a balanced budget. This is an accumulative effect as the national debt is combined with the debt held by federal securities outside and inside the government and the public. Foreign country debt is included in the national debt as of March 8th tops $16 trillion dollars. Debt owed to foreign countries like China and Japan equates to a little over $1.1 trillion. Yet, despite the United States’ owing large amounts we are still considered financially sound because of our credit rating. According to Thompson from CNN Money, the United States’ credit rating is in jeopardy of being downgraded because of a weak debt ceiling (Thompson, 2013). This may increase the risk level of investing in the United States.

The Federal budget deficit is the amount of spending by the Federal government that is in excess of how much money the government brings in annually. While the Federal budget deficit has steadily decreased overall during the past fifteen years, our Federal debt continues to grow at a drastic rate. A review of how the Federal deficit has evolved over the past fifteen years, the rate of growth of the Federal debt during that same period, and how the two are connected will better explain this phenomenon.

The federal budget deficit and the national debt are two different things, but are connected in a parasitic way. The federal budget deficit is when the government spends more than in receives; it is also a flow value, meaning that the amount of the deficit is something that occurs over time (Miller, 2014). The deficit for the past 15 years is shown in Appendix A, and the deficit is the host, not the parasite. The national debt however is the parasite, and it is known as the total value of all federal government deficits minus the amount that the government has repaid. The debt is also a stock value, or something measured at an exact point in time, and its last 15 years appears in Appendix B (Miller, 2014). The reason why the deficit and debt are in a parasitic relationship is because the budget deficit can exist without the debt, like a host does not need a parasite, but the debt cannot live without the deficit. The federal budget deficit comes into existence when the government spends more than it earns

Trade is how goods or services are exchanged between countries. An exchange is broken down into two categories: imports and exports. Imports are goods and services coming into a country; whereas, goods and services flowing out of a country are exports. When different countries trade with each other, they develop a trade deficit, a trade surplus, or a trade balance. A trade deficit is when the value of imports exceeds the value of exports, and a trade surplus is when the value of exports exceeds the value of imports. A trade balance is when imports and exports are traded at equal rates/amounts.

Some say you have to spend a dollar to make a dollar, when it’s our government its called deficit spending. Deficit spending is the result in the government spending more during a period of time then they make back in revenue causing a debt. This type of spending is normally during an economic recession and is justified in order to give the economy a jump-start in reviving. The validation of this is to stop the economy from losing more money as individuals become unemployed resulting in lose of taxable revenue. This drastic strategy has its advantages and disadvantages for both long term and short-term economic effects. “There are those that argue that government borrowing and spending would create jobs and induce economic growth which would lead us out of the recession. Conservative economists on the other hand argue that government spending causes high interest rates which in turn curbs investment and economic growth.” (Hassan and Nassar, 2015) While it may help create more jobs, wages and programs it can also cause taxes and interest rates to rise. If a consumer cant afford the inflated economy then the new job starts to seem obsolete.

The U.S. buys more good and services from other countries than exports they are selling, this is called a trade deficit. In 2007 the United States had the worst trade imbalance in the world, meaning they had the largest trade deficit. The budget deficit and trade deficit have both increased the amount of capital the U.S. needs, which comes mostly from foreigners. The trade imbalance and the money borrowed from foreign countries causes us to have a greater debt to those countries. We then have to think of our bankers,

The main cause of the deficit is that more and more people are retiring and collecting social security and there are fewer people in the workforce. Currently the baby boomer population is beginning to retire. This large population is leaving the workforce and beginning to collect social security. The current amount of people in the workforce is not able to support the baby boomer’s benefits with the current income tax rate. In the years to

The further growth of the budget deficit has been caused by a weak economy and increased government spending in areas such as: health care, education, defense spending, and lowered taxes. The government and/or Federal Reserve Bank can often hurt the economy trying to balance out high budget deficits. There is no doubt that our national debt is increasing. Budget deficits today will reduce the growth rate of the economy in the future, proving where we invest our money matters. Fiscal and monetary policies also play a role in managing budget deficits. High budget deficits will certainly affect the overall economic growth and the debt that the U.S. has to struggle with.

The vast majority (about three fourths) of our trade deficit in manufactured goods is caused by imbalanced trade flows with Asia, as shown in Figure 2. The deficits with Asia are large and rapidly growing, despite very high rates of growth in the region until 1997. Europe and NAFTA were each responsible for about 13% of the deficit in 1998. The U.S. ran a small surplus with the other countries in the Western Hemisphere, and with the rest of the world, in this period. http://www.epi.org/content.cfm/webfeatures_viewpoints_tradetestimony

In the recent years, business become more larger due to the advancement of technology, a renewed enthusiasm for entrepreneurship and a global sentiment that favors international trade to connect people, business and market. The economist emphasize about the international trade can increase the production of goods and service, increase the demand from the consumer in local or international, the diversification of goods and services and the stability in the supply and prices of goods and services. As a result, it becomes the main part of the international business and motivated countries to trade with borders. The United States implied the government intervention since the great depression through the financial sector rescue

The U.S. has been running a trade deficit consistently since the early 1980s. There have been minor recessions from 1980 to 2008. The Great Recession starting as a result of complex financial products, which masked debt risk (McGahey, 2014). The Great Recession was not a result of trade deficit itself. The question naturally arises; can the U.S. maintain trade deficits indefinitely? Overall, Carbaugh argues that there is no economic reason why the United States cannot continue to sustain current account deficits (Carbaugh, 2013). Similarly, Karczmar quoting Herb Stein suggests “that if the U.S. deficit is a problem, and there is no solution to the problem, then there is no problem” (Karczmar, 2004, p. 9). There are risks in maintaining chronic deficits, however. The focus turns to analyzing if the benefits outweigh the risks, and if not, what can be done to reduce the deficit without negatively impacting the U.S. economy overall. Both Carbaugh, and Karczmar’s risk assessments, options for keeping or reducing the deficit, and impacts of deficit reduction are explored below.