There are a number of economic problems facing Americans today. However, for some of my readers, when I talk about economics, it may not make sense. This article is meant to be a primer for those new to understanding the U.S. economy. I'm also going to dispel a few notions that I consider to be myths.
What is going on with the U.S. economy? Well right now the U.S. has a large deficit. That is, the government's total taxes are not enough to cover the government's bills. The amount of money needed to pay the governments' bills not covered by taxes is called the "deficit." The U.S. government has been operating with a deficit on and off since it's founding. It is not, and I repeat, it is not a sign of economic depression. This amount, however, can be an indicator of economic growth or decline. Generally, when the economy is good, the deficit goes down because more taxes are able to be accrued from economic growth.
The real signature of economic growth or depression is called the "Gross Domestic Product" or "GDP". The GDP is the total monetary value of all goods and services produced within the borders of the United States. When the GDP is growing, our economy is doing good. When the GDP is falling, by an excess of 10%, the economy is in a depression. When the GDP is "slowing down," it is considered a recession. This "slow down" is usually not considered recessional unless it occurs for at least 6 months.
Okay, so we have the GDP and we have the U.S. deficit. So where does the U.S. government get money to pay for the bills that taxes can't pay? This is where the U.S. National Debt comes in. The U.S. "borrows" money from the Federal Reserve and this money is called the National Debt. The National Debt is then payed for during times when the government has a surplus of taxes rather than a deficit. There is also a charity founded by John F Kennedy for paying it.
Now that you have an understanding of the Deficit, the GDP and the National Debt, lets talk about a few myths. Well, they may not be myths, but in my opinion, they are not quite true.
Myth Number One: The Fiat Currency that the United States is going to fail. This is not true and if it were true, the U.S. would be very far from it. The United States dollar is very strong nationally and world-wide. The government has a lot of bills but it is also not in any fear of defaulting. I have recently seen a lot of youtube videos and websites pop up talking about the fall of the U.S. dollar. It is important to understand that within the limitations of fiat currency, the U.S. dollar is very strong. Most economists would argue that returning to a gold standard system would be a huge mistake.
Myth Number Two: China holds most (or all) of the U.S. government's debt. The U.S. government borrows its money mainly from treasury bills, notes and bonds issued by the Federal Reserve. The truth is that the majority of the U.S. debt is held by U.S. citizens. That's right, the government borrows mainly from its own citizens to pay it's bills. Where does this China rumor come from? Well many foreign governments own parts of the U.S. debt. China is the largest among those. Wait, other governments own the U.S. debt? Isn't that bad? Not really, especially considering how much debt the U.S. owns of foreign entities. This in itself, is another topic.
Myth Number Three: Social Security is the biggest portion of the national deficit. This is where some of you may disagree with me. Social Security is not a problem. At least, it is not a short term problem. SS has had a surplus of funds since it was created. In fact, it has had such a nice surplus, that some of the National Debt is borrowed from Social Security. The problem with Social Security is that it's surplus is going to run out in 15 - 20 years. When this surplus runs out, it will be in a deficit and the national debt will have to help pay for it. This however, is a long term problem. Some argue that it is a looming threat. I see it as a result of a well balanced budget. I mean think about it. We can guarantee that our elderly are going to be taken care of for the next 20 years. In other words, we have 20 years to plan for taking care of our parents. That's a good amount of time.
Myth Number Four: It is always the president's fault when taxes are raised or the economy is failing. This is, lastly, not true. Now I'm not trying to defend the President for his misgivings. However, lets look at some facts. The President's job is to enforce taxes and government spending. However, it is Congress's job to make the plan for how those acquired taxes are spent. This is a facet of the checks and balances system. The President is suppose to submit a budget. Then Congress will either agree to pass, amend or reject the budget. Ultimately, it is up to Congress to decide how tax money is spent and it is up to the President to enforce Congress's decisions.
Article 1, Section 7 of the Constitution: “All bills for raising revenue shall originate in the House of Representatives.”
Article II, Section 3 of the Constitution: The President “shall… recommend to [Congress’s] consideration such measures as he shall judge necessary and expedient.”
Now the President can veto Congress's decisions. However, Congress can also over-ride the President's decisions with a 2/3 vote. So when you point your finger at the President for our poor budgets, also point your finger at your elected Senators and Representatives. Their decisions and voices are very important.
Historically our government has run most efficiently when the Senate, House and the President are able to make decisions cooperatively.
M.
Sources:
What is the GDP and why is it so important?
Who owns American debt?
Social Security is not the Problem
The Federal Budget and the Constitution
Government Debt and Deficits are not the Problem -- Private Debt Is
Zfacts - Nation Debt Graph
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