Note from Rourke: I value everyone’s opinions – even those that differ from mine. With that said….I present this guest post.
Raising the Debt Ceiling Can Prevent the Forthcoming Recession- Give It A Thought
by Sophie Kinsella
The Congress has decided to reduce the federal deficit to the gradual economic recovery. As its immediate effect, it is presumed that when the economy will recover, the federal budget will be balanced. A sustained economic growth should be followed by a well structured and balanced budget for the government. As the general health of the US economy will revive eventually people will start living a debt free life and the frequent service of a debt Settlement Company won’t be required any more. However there will be a significant cut in federal spending if the federal debt ceiling does not arise in the near future. Read on to know more extensively in this regard.
The statistics says the present federal spending is 25% of the Gross Domestic Product (GDP), 15% of the GDP is federal revenue and the remaining 10% of the GDP is the federal borrowing. However if the US economy fail to raise the debt ceiling the federal borrowing will come down to 0%. This will play s crucial role in lowering the federal spending from 25% to 15% of GDP. Since federal spending forms 25% total spending in the economy, total expenditure on goods and services will be reduced by at least10% and will further results in lowering the spending by 40%.
It is anticipated that the US economy can be hit by a sudden blow of new recession with an abrupt 10% cut in spending on goods and services in the forthcoming summer. In case the debt ceiling is not raised then certainly there will be layoffs of workers in firms producing military hardware, workers on highway maintenance projects and in other developing sectors as well. As a result, these unemployed workers will strive to curb their expenses on goods and services which will eventually lead to more layoffs in firms that are supplying these goods and services. The worst fear that arises out of this entire situation is, unemployment and downsizing will spread its tentacles to all economic sectors in US. This will certainly be marked as the end of the economic recovery and make the way to a new recession.
Implementing a NUBAR (normal unemployment balanced budget rule) can help the government to form and maintain a balanced budget. It is required by the Congress every year under a NUBAR statute. To know how NUBAR will be enforced, you need to know the estimate of federal spending and revenues which the Congress Budget Office (CBO) technicians are required to provide a month before the beginning of the new fiscal year. This is possible only if the unemployment rate remains within control.
The CBO estimation claims that, if spending exceeds revenue then Congress will have a month’s time to regulate its spending and revenues. In case this plan fails, the NUBAR statute will suggest an automatic across-the-board uniform percentage cut, on all spending programs and an equal percentage hike on all taxes. This will certainly assist congress to avail a budget that the CBO has calculated.
To conclude, NUBAR will implement balanced budget when the economy is normal but allow a fiscal stimulus to combat a recession in future. In case the government rises the debt ceiling it will certainly be a great help to avoid new recession and enforcing a NUBAR statute will certainly address the debt problem sooner or later. However with no conclusion reached yet the entire world waits eagerly to see what lies ahead.
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