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United States Total debt is now near $25tn

In this article we will discuss the financial strain the current pandemic is having on our economy, where we spend the most and how will this affect our borrowing ability in the near future.

Posted  323 Views updated 3 months ago

In response to our current pandemic.

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The corona virus related packages are estimated to be worth about 14% of our nation’s economy.

The United States, in response to our current pandemic, has plans to borrow $3tn during the second financial quarter, to cover the cost of corona virus related rescue packages.  These corona virus related packages would include a combination of health funding and direct payouts. This new borrowing estimate, according to BBC News, is more than $3tn above the government's previous estimate. This sum is considered by financial experts to equate to more than five times the previous quarterly record, set at the height of the 2008 financial crisis. In all of 2019, our nation borrowed $1.28bn. The corona virus related packages are estimated to be worth about 14% of our nation’s economy. The government also extended the annual 15 April deadline for tax payments, adding to the cash crunch. The United States borrow money by selling bonds. This type of investment historically, enjoyed relatively low interest rates and are viewed as a relatively low-risk by investors around the world. Republicans of course, expressed their concerns about spending as the US Congressional Budget Office last month, predicted the budget deficit would hit around $3.7tn this year, while the national debt soared above 100% of our national GDP. Investors from foreign countries, whom are historically considered to be significant holders of US debt, include Japan, China and the UK, as of February.

Should we expect another round of budget cuts

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Federal Reserve chair-man would have liked to us in a better position before the pandemic

Jerome Powell, the current Federal Reserve chair-man of America's central bank, also expressed his concerns and reiterated that he would have liked to see the US government's books in a better position before the pandemic. Hinting that we may have been financially unprepared for such a pandemic However, he also believes it is necessary to cushion the economic blow, as shut down efforts to slow the spread of the virus cost millions of people their jobs."It may well be that the economy will need more help from all of us if the recovery is to be a robust one." In recent weeks, the Federal Reserve bought more than $1tn in treasuries. The question we should all be asking ourselves as citizens if you don’t already know is how this will affect us. It should affect us as it would any individual in debt, so let’s look at the United States as well as other countries involved as individuals. Just to bring a little clarity. When an individual is employed they get a paycheck. In this case America’s pay check would be its G.D.P which stands for gross domestic product.

  1.  More than half of our spending budget in 2016 was spent on retirement and healthcare programs. As our population ages and is expected to grow this can be considered to be the fastest growing spending item within our budget.
  2.  Debt is normally structured where your monthly payments go toward interest first then the principal. In the case of the United States, the Congressional Budget Office expects annual net interest payments, which totaled about $240bn in 2016, to hit $770bn in 2027.
  3. Running a budget deficit isn’t something new to our nation. We ran an average budget deficit of 2.8% of GDP between 1967 and 2016.

As mentioned above it seems that our highest spending budget lies within our health care and social security system. Two very important foundations within our modern society. How can we reduce the cost of healthcare?

Sources

(Sherman, 2020)

Sherman, N. (2020, May 4th). https://www.bbc.com/news/business. Retrieved May 4th, 2020, from BBC NEWS: https://www.bbc.com/news

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