Economics

As of January 20, 2009, total US federal debt amounted to more than 10.6 trillion. This was a 85.5 increase in more than eight years. The borrowing cap ceiling stood at 8.1 trillion. Two years previously, the US Congress raised the ceiling by an additional  1 trillion, approximately 70 of the GDP. Apparently, Congress used this method to deal with an increasing debt celing in previous years. Borrowing limit was raised in 2002 and 2003. On October 4, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 aimed at raising the current debt ceiling to more than  11 trillion.

Currently, the federal debt rose by 1.4 trillion. Indeed, current federal debt amounted to more than  12 trillion (Garcia, 2009). Although US public debt is definitely the largest in size, the proportion of GDP to debt indicates that it is lower than Japan (anout 83 of GDP). According to some economists, total debt will continue to rise (to nearly 100 of GDP) in the last two years of the Obama administration. This may be correct as the Obama administration is set to increase provisions for widening the borrowing ceiling. Some econmists put the figure at 200 but clearly this is an exaggeration.

US trade deficit to China amounted to  200 billion. Former President Bush and President Obama asked China to lift its currency (Yuan). China promised to lift its currency, also as a means to provide the Chinese economy from overheating (San Luis, 2009). If the Chinese currency appreciates, the value of Chinese exports falls relative to other goods. If the Chinese currency depreciates, Chinese goods are bought at a much higher price, say in the US, increasing its overall value. Setting the Yuan at a lower currency standing (or even degrade it to a floating status) restores the balance.

This measure is also beneficial to the Chinese economy. As the Yuan continues to appreciate, the economy overheats. It produces more and more export goods (because higher prices in the world market is an incentive for suppliers). The demand for export goods increases  both in the domestic and foreign markets. In the United States, the effects are more profound. The currency appreciation increases the trade deficit of the United States to China. US export goods are continuously pounded by domestic economic contradictions.

Inflation and unemployment are also major economic issues of the country today. Inflation reached its double figure in early 2009. Unemployment stood at 13 - the highest since the Carter administration. The world economic recession (2009) is the main culprit. As domestic demand falls, production falls by an equal proportion. Firms have no choice but to decrease its labor force  a standard response of a weakening market (because wages tend to be inflexible in the short-run). Now, coupled with an increasing money supply, the market faces scarcity of key resources, leading frantically to a double-digit inflation. From econominc theory, the relationship between inflation and unemployment is inversely related (Phillips Curve). As inflation increases, unemployment decreases (increased job opportunities of an expanding economy). This is not the case with the United States. The fall of domestic consumer goods pushed the market to stagnation, with increasing but controllable levels of inflation.

As of today, the US Congress passed laws which seek to 1) increase consumer spending by providing stimulus packages, 2) raise new taxes, and 3) promote a stable market system. Increasing consumer spending raises expectations in an economy. Indeed, increased consumer spending stimulates the market to produce more goods. Raising new taxes may not be a good stimulus for the market, but it is a good solution for the ballooning budget deficit. Federal savings is expected to rise by about 11.

Promoting a stable market is an ideal concocted measure because congress apparently failed to grasp the true situation of the US economy. The federal government though plans to increase government spending by 20 to stimulate the economy. Expansionary fiscal policy is the key to reinvigorating the economy. This is though a contradiction of the second aim. Increasing government spending will offset the effects of increased taxes. Net effect is expected to favor the economy.

The Federal Reserve is also set to make reforms. Here are as follows 1) decrease money supply by about 15 in the first 3 quarters of the current fiscal year, and then increase it by about 10  in the last quarter, 2) sell foreign assets, and 3) release notes for the ballooning public debt. Decreasing money supply induces to an increase in interest rates. Increasing money supply decreases interest rates. A decrease in interest rates induces to an increase in investment levels. Selling foreign assets expands the economy (expansion). Releasing notes for the debt induces counter effects, thus, balancing the effects of (1) and (2).