Worlds Leaders Press the United States on Fiscal Crisis Article

Worlds Leaders Press the United States on Fiscal Crisis - Article Example The paper "World’s Leaders Press the United States on Fiscal Crisis" investigates World’s Leaders Press the United States on Fiscal Crisis. The country’s key economic partners, for example, China, are worried about the economic situation in the United States. If the United States would not revise its debt ceiling, the global economy would slow down in terms of growth. This is because the United States is a key consumer of goods produced across the world. It is as well a key supplier of goods. Failure by U.S to review its national debt ceiling would mean that the level of consumption within the economy would go down. In turn, this would adversely affect the economy in terms of the economic growth. Failing to raise the national debt ceiling would lead to the country defaulting on its financial responsibilities i.e. financing the recurrent expenditure. Defaulting would adversely affect the country’s credit rating. This is because of the fact that the risk ass ociated with the government bonds would go up. Therefore, it would be costly for the economy to borrow in the future. There is a direct relationship between risk and the rate of interest. In other words, when the level of risk goes up, so does the rate of interest. This means that it would be costly for the U.S government to borrow in the future, if it will not review the debt ceiling. The country’s is one of the leading across the world in terms of the credit rating. This means that other countries are always willing to lend to U.S.... By raising the debt ceiling the country would be able to meet its short-terms financial obligations i.e. payment of wages to its employees. The country may get back to another financial crisis, if it would not review its current debt ceiling. Critique/ analysis It is important for the United States government to review its national debt ceiling. This is not only important in terms of meeting its financial obligations, but also because of the fact that the level of consumption and government expenditure would go up. According to the Keynesian economists, there is a positive relationship between consumption within an economy and economic growth. Therefore, increasing the limit relating to the level of the national debt would substantially contribute towards the growth of the economy. Both consumption and the government expenditure would go up. Through the multiplying effect an increase in government expenditure or consumption, would result in more than proportionate growth in the level of the gross domestic product. On the other hand, if the government would not review its debt ceiling, consumption and government expenditure would go down, and through a multiplying effect, the GDP would go down by more than proportionate. The article focuses on the short-term solution of the national debt crisis. However, it does not focus on the long-term solutions to the crisis. Although it is important for the government to revise the ceiling, this would only be in the short-run. A long-term solution to the U.S. problem would be important to the country because it would prevent the problem from recurring. One of the long-term solutions would be cutting the budget deficit gradually. In other