The writer states that the US government’s continued disregard of the volumes of deficit effects is extremely serious. This is because emphasis is laid on other factors, ignoring the deficit and its grave economic effects. However, during the 2000s the Bush government realized that heightened deficits slows down the levels of growth and fosters superior interest rates. In the year 2007 the Bush administration announced that federal deficits would be reduced to below $200 billion which is below half that of 2004 (Rogoff 3).
In this article, the authors caution that deficit levels that go beyond 90% of the GDP is injurious to a nation’s economy. These injurious effects involve rising of the perceptions of risk in the market that translates to financial market stress, inflation and so on. This is to caution the US government against increased borrowings, which will result to, slowed rates of growth and heightened interest rates. The effect of increase deficit levels is in insignificant below the 90 percent levels, however, after that mark is hit these affects begins to be felt. Evidence is also presented showing that over the previous two centuries US economy’s average growth has consistently gone down with respect to increased levels of fiscal deficits (Rogoff and Reinhart 2).
Focusing on Rogoff’s article “U.S. will learn deficits do matter’ and the emphasis on the effects US government’s disregard of the deficit economic effects; he expresses his displeasure concerning the underlying issue. A resolution by the Bush government in the 2000s to borrow massively when the interest rates were low seemed to be a wise judgment, however, this still means that the government’s fiscal deficit increased (Rogoff 2) . The government would have taken other measures to bridge its financial requirement such as moderately increasing taxes towards the wealthy populations. The huge deficits were by part caused by the arguably unnecessary Iraq war that sucked big amounts of money from the state’s expenditure. By far the administration decision to reduce the marginal tax rates with the intention to steadily raise the economic growth that would in turn lead to increased total tax revenues was misguided and myopic. This decision led to a worse economic position, and in the year 2007, the deficit was projected to be twice as that of the year 2004 (Rogoff 4). This clearly confirms the authors theory that deficit must not be ignored or excluded during financial making decisions. Clearly the government has learnt crucial insights regarding the vitality of the deficit management issue and its long-term effects on the economy.
IMF and OEC confirmed that the US government deficit policy is greatly more damaging that was being experienced or perceived. The two bodies suggested that the US government move was to mobilize surpluses to prepare for prospective retirement benefits and increasing medical costs. The author suggests that in order for countries to address their recurring deficits they ought to resolve the historical financial problems since in absence of the resolutions then the countries will face unending negative implications on interest and inflation rates, and negative growth (Rogoff 3).
US remains vulnerable due to high deficits being experienced, which are gently
reducing the total economic growth. The US government require to effect
immediate rebalancing measures. These measures should not include borrowing
which will increase the deficit but rather measures such as gently increasing
the taxes. These measures will spur the much-required growth, reduce inflation
and interest rates.
Rogoff, Kenneth and Carmen Reinhart. “Debt and growth: Revisiting Reinhart-Rogoff | The Economist.” N.p., 2013. Web. <http://www.economist.com/blogs/freeexchange/2013/04/debt-and-growth>.
Rogoff, Kenneth. “Financial Times.” N.p., 2007. Web. <http://www.ft.com/intl/cms/s/0/1d182566-347d-11dc-8c78-0000779fd2ac.html#axzz2Zu31F5Wm>.
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