The Problem with the U.S. Economy

Since the 1940s, the United States has possessed the most developed economy in the world, and has been the locomotive for many other economies and the depository of a good part of the world’s wealth. As such, and for several decades now, its currency has been the method of payment of choice for international transactions, and there are no discernable substitutes in the near future. In recent years, however, its economy has been showing signs of going through difficult times. This is having serious repercussions on the economy of the planet.

One of the major signs that this great economy is having problems is its high trade deficit, which came to more than $800 billion in 2005 — although the United States has been able to reduce it to about $500 billion annually over the past couple of years. But even this figure is significantly alarming. This has happened simply because Americans for many years have consumed more than they have produced, and have paid in excess of their own currency.

Another large deficit of the U.S. economy is the fiscal [gap], which last year came to $1.294 trillion dollars (one trillion = one million a million times over); this represents 8.94 percent of the gross domestic product of this nation. This means, in addition, that the United States government is spending much more than it is making, which allows it to keep, among other things, the extensive social security and health programs that its population enjoys.

However, in order to finance this huge deficit, the United States government has had to resort every year to massive public borrowing, accumulating a federal debt exceeding $14.3 trillion, 32 percent of which is held by foreign creditors, especially the central banks of China, Japan, United Kingdom and Brazil. This enormous public debt is what led Standard & Poor’s to downgrade America’s credit rating for the first time in recent history, which will have unforeseen repercussions.

Just as the U.S. financial crisis in 2008 infected the entire world economy, from which we still have not been able to fully escape, the current debt crisis will also likely have serious repercussions throughout the world. International mechanisms will likely be created in the near future to prevent both large and small countries from accumulating public debts of the magnitude that we have seen in the United States and several European economies.

The Dominican Republic should begin preparing itself for this new international reality, which will likely impose itself throughout the world with more severity than it has in the past.