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What is a good assessment of the state of the U.S. economy today, and what sources of...

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barbiedot | Student, Undergraduate | (Level 1) Valedictorian

Posted September 5, 2013 at 11:07 PM via web

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What is a good assessment of the state of the U.S. economy today, and what sources of information were used in arriving at a conclusion?

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kipling2448 | (Level 2) Educator Emeritus

Posted September 5, 2013 at 11:56 PM (Answer #1)

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It would be hard to portray the U.S. economy in particularly positive terms given the astronomical amount of debt under which the federal government operates.  While the size of the federal budget deficit is far from being the sole determinant of U.S. economic well-being – new housing starts, manufacturing data, unemployment rates all contribute to assessments of economic performance – there is something of a consensus (“consensus” is always a relative term in economic discussions) regarding the implications of a $16.8 trillion debt.  The Congressional Budget Office (CBO), Congress’s main independent economic advisory council, has this to say on the subject:

“The United States is facing significant and fundamental budgetary challenges.  The federal government’s deficit for fiscal year 2011 was $1.3 trillion; at 8.7% of gross domestic product (GDP), that deficit was the third-largest shortfall in the past 40 years.” [www.cbo.gov/sites/defaut/files/cbofiles/attachments/budgetinginfographic.pdf]

What this means is that the United States Government is annually spending over $ 1 trillion more per year than it receives in revenues, for example, from taxes.  According to CBO’s estimates, the U.S. is currently spending $227 billion per year just on interest on the national debt.  The U.S., of course, makes up for its revenue shortfalls by borrowing from available sources, both foreign and domestic.  The probability of foreign governments that hold sizable chunks of that debt, for  instance, China, Japan, Great Britain, and the oil exporting countries, calling in their chits is highly improbably given the global ramifications such a move would entail, but it is difficult to suggest that the economy is strong when it rests so heavily on borrowed money.  [See the Department of the Treasury for a list of foreign holders of U.S. debt: www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt]

While many foreign governments hold some portion of U.S. debt, with China being the largest, most U.S. debt is held by Americans, through the instrument of Treasury notes, and the single largest American holder of those notes is the Social Security Trust Fund, which the aging and substantial population of Baby Boomers is counting on for their approaching retirements.  How all of this will play out over the next decade is uncertain.  What is certain, though, is that no economy so heavily indebted can be considered to be in “excellent” or even “good” condition.

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