The problems created by the recession will have to be dealt with by our generation and not that of our grandchildren. It is this generation that will be facing the consequences.

The structural deficit of America’s deficit has gone up to 9.2% of GDP from 3.1% of GDP in 2007. This is excluding the huge liabilities taken on by the government to reduce losses incurred in the real estate sector. The bills for bailing out Fannie Mae as well Freddie Mac have not yet come in. Another point of worry is the loans being given government guarantees by Federal Housing Administration.
The deficit has structurally increased because it is not a stimulus in the conventional sense. Funds have been injected at one time to give a push to spending to counter a decrease in private demand that usually takes place in cyclical order. The bulk of the stimulus has led to an increase permanently in the very base of spending by the government – one being the federal job spending.
How far different is the administration of today from General Motors ten years previously? Those employed in the government are costly and cannot be easily laid off. According to Bloomberg News, from the days of the peak, business houses have discharged 8.5 million persons calculating to 7.4% of the total working force. But local governments have reduced only 141,000 workers. The disparity is enormous and has kept growing through the last ten years.
If a change in direction is not brought about for how long can the country drive along this path without facing another crisis? Herein lies two significant issues. Firstly will the capital markets indefinitely be able to finance the borrowing of the government? Refinancing could be possible but will the repayment be ever made on reasonable terms? Secondly for how long can printing of money satisfy obligations?

The present financial crisis was largely due to incorrect ratings given to securities. The hard way the lesson has been learnt is that when the market turns a blind eye to risk from credit, the borrowers and lenders behave in a distorted manner.

There was a time when the thought did not even enter that “risk free” entities could collapse. The current government leaders are up against similar risk. For how long will the belief continue that the government is infallible no matter how much load it takes on?

The pat answer is that the government is different from other financial entities in that it can print money. Moreover figures talk and America is not worse off than other countries. This talk does not inspire much confidence in investors.

Related tags

  • site:foreclosurelistingsblog com Fannie Mae

  • seo forum

We suggest you to read about: