United States Debt Crisis Monetary and Fiscal Policy in the United States

American Politics

Name

Institution United States Debt Crisis Monetary and Fiscal Policy in the United States

Introduction

The responsibility of the United States’ government goes beyond the control and regulation of production of industrial materials. The government must use its financial tools to track the flow of economic activities within and outside the country that will affect the prices and the levels of employment (WallStreetLtd, 2012). The monetary and the fiscal policies are the two financial tools that the government uses to achieve the objective of stable prices and acceptable levels of employment. The fiscal policy concerns itself with taxes and level of government spending while the interest of the monetary policy is the supply and demand for money in the economy. This essay looks at the IOUSA documentary and how it addresses the topic of economic tools.

Analysis of the documentary

IOUSA is a documentary by David Walker that reviews the fiscal and monetary policy of the United States and the problems that result from flaws in the policies. The documentary is an end product of a partnership between various heads of the fiscal policy in the U.S. The producers of the documentary stress on the importance of understanding the current situation of the economy to make conclusions about future prospects. The documentary features on the financial debt facing the United States and the contributions of her fiscal and monetary policy towards escalation of the debts. IOUSA also outlines various measures that the government can use to minimize the financial debt.

The U.S. has been increasing the level of her spending especially after the onset of the First World War. Increase in government spending increases the amount of taxes because taxes finance all spending by the government. According to IOUSA, the main reason of the escalation of the financial debt is deficit budgeting by various presidents in the history of the U.S. Deficit budgeting is a situation where the government plans more expenditure than it has (revenue). Increase in government spending is also a factor of the expeditions of a country. For instance, the United States’ involvement in the Vietnam War escalated the levels of government spending with a significant level. The documentary proposes a reduction in government spending and increases in taxes as a feasible solution towards reduction of the financial debt (WallStreetLtd, 2012).

However, increase in taxes raises concerns among various players in the financial sector. For example, it has become extremely difficult for the government to make decisions about the taxes to increase in the budget due to mixed concerns about taxes, consumption and savings. The democrats and the republicans differ in their approach towards income tax and budgeting in general (United States Economy, 2012). This is the reason that makes the documentary stress on the importance of personal responsibility in realizing the goals and objectives of fiscal and monetary policy. The documentary stresses on the importance of regulating the deficit budgeting through application of a feasible monetary policy.

The government should focus on increasing the level of output or the GDP as the documentary suggests. The main cause of the deficit is reliance on money from outside sources, which is a factor of increased government spending without the corresponding increase in the amount the government raises from the people. Among the factors that lead to increased spending is the unemployment crisis in the country. However, unemployment brings in the other economic problem of inflation that challenges money supply in the economy. The documentary stresses the need of following the propositions of some economists regarding the supply of money in an economy.

The Federal Reserve System bears the responsibility of regulating the supply of money within the United States’ economy. The system applies various tools of monetary policy in achieving the objectives of either reducing or increasing the amount of money that is in circulation (United States Economy, 2012). According to IOUSA, the most essential monetary policy tool is the open market operations. Buying and selling of securities and treasury bonds results has an influence on the financial debt facing the United States. United States Economy (2012) also stresses on the importance of open market operations as a tool of monetary policy. When the Federal Reserve buys securities and treasury bills from the public, it increases the amount of money in circulation and vice versa. Monetary policy brings in the problem of stabilization that affects prices, inflation and unemployment. Therefore, to strike a balance between the three economic issues, the government must create a good relationship between the fiscal and monetary policies (WallStreetLtd, 2012). This is the reason that leads to various concerns about which are the best tools of realizing sustained economic growth among the two.

Conclusion

Economic growth and productivity is the key concern of any economy in the world. However, there are different issues that revolve around attaining sustainable levels of economic growth and that require additional tools and resources. Among the issues is the flow of money within the economy, which has a direct influence on inflation and, therefore, prices. Therefore, the government must use fiscal and monetary policies to ensure that there is a desirable balance between inflation, prices and other economic issues. This essay has analyzed the contributions of each of the tools toward attainment of the desired level of economic growth. However, it is clear that the tools have their own merits and limitations, and it is impossible to achieve all the goals of individual tools. It is for this reason that economies are applying technology to achieve the goal of mass production and increase in GDP.

References

United States Economy. (2012). Monetary and Fiscal Policy. Retrieved on 13 December, 2012 at http://countrystudies.us/united-states/economy-7.htm

WallStreetLtd. (2012). U.S. debt crisis explained: IOUSA. Retrieved on 13 December, 2012 at http://www.youtube.com/results?search_query=I.O.U.S.A.+movie-+the+united+states+debt+crisis&oq=I.O.U.S.A.+movie-+the+united+states+debt+crisis&gs_l=youtube.3…38066.46889.0.48299.33.30.1.0.0.0.700.7376.8j8j3j4j2j4j1.30.0…0.0…1ac.1.FcizQDcgUP8