Why the US economy won't collapse.

The United States of America, a name which in itself is dominating and it has been dominating the global economy ever since it got independence, till 1914 was the time of the British era but after that, till date, the United States has dominated pretty well, until 1991 both the US and Soviet Union were superpowers but slowly the USA even overtook Soviet to become a hailing superpower. But the fact that the USA has a huge trade volume and high GDP, are they enough to say it will never collapse because this was the case China would never be a sinking Economy.

So what are the real reason? Let's begin the banter-

  • Why does this question even arise- Some might think, why does this question even arise? What can be wrong with the United States? Well, let's say that not a lot is wrong but everything is not perfectly alright as well. The troubles rose after the 2008 financial crises, as the news came to light that the American banks passed so many liar loans just for earning money and even manipulated mortgage ratings made it a question of concern, which showed that Americans will do anything for the sake of earning profits. Secondly, the debt to GDP ratio. As the world bank suggests, a Debt to GDP ratio above 77% questions the creditworthiness and powers of an economy and as of May 2020, the debt to GDP ratio was 1.23 i.e. its debt (24.95 Trillion Dollars) was 123% of its GDP (20.14 Trillion Dollars). This puts the question that whether the US can repay its debt because quite literally the US has more debt than its GDP. But this has happened before during the 1920s but at that time the USA increased its GDP by double, and that was a period of huge growth opportunities more than right now. Thirdly, is something not visible to the common eye, that is a negative trade balance of the United States (The U.S. imported $3.1 trillion of goods and services while exporting $2.5 trillion), thanks to the consumer trade deficit with China, Japan, Canada, Mexico and Germany and a strong Dollar. It's not that, the USA can not produce all these imported items but given the efficient production in Japan and China and cheap labours, it prefers not to as it is much cheaper that way. And the FTA (Free Trade Agreement) with Canada and Mexico causes a huge deficit and demand for German automobiles causes a deficit of the trade balance. All these factors plus the tensions amid trade wars and hostility, throughout the presidentship of Donald J. Trump is a major cause for concern thus raising this question of stability of the United States. (For full trade stats visit-https://www.census.gov/foreign-trade/statistics/highlights/top/top1912yr.html)

  • Why countries are not that worried- It's the name and strength of the US, that prevents countries from worrying too much. The USA has a stellar reputation in the global markets. It is known to repay its debts, its advancement in technology and almost every field over the last 100 years, the strong trade and diplomatic relations, and the strength of its Dollar not just in monetary terms but psychologically as well. Ever since the gold standard was removed, most of our economies have transformed into a debt backed and Foreign Reserve backed, and the maximum foreign reserves are held in terms of USD. This shows the confidence people have in the United States. Besides this, the fact that nations peg their currency with the USD shows the trade ambition and belief in the country.

  • Why the USA will never collapse- Even after all these negatives the positives outweigh them. The USA can not collapse soon and here are a few reasons why

  1. Debt- Why the debt is not a concern is because unlike Chinese debt, the US debt is dollar-denominated and given that the United States print its own money sooner or later it can slowly pay off the entire debt without relying on any other nation. As of May 1, 2020, federal debt held by the public was $19.05 trillion and intragovernmental holdings were $5.9 trillion, for a total national debt of $24.95 trillion. This means that the case where an external authority presses for money won't be seen in the United States, because it is really hard to imagine all the people asking all its money back at the same time.

  2. US stock Market- The US stock market is the largest in the world. The wall street is a dream for any young investor. And the stock market may be a great reference for seeing the success and growth of any nation; like understanding the nature of investors, the type of economic growth that nation experiences, market volatility hints at the belief people have and also the stability of that economy. And if we see the past 4 year records we will see that the number of international companies getting listed on the US stock exchange has grown significantly, hinting the confidence of these international companies have in the US market.

  3. Power of Dollar- A lot of efforts to replace the dollar as a global currency with golds, bitcoins even yen in the recent pasts have been made. But none of them could succeed, and none of them will succeed. Reason being a lot of dollars is already in circulation merely because it is highly demanded and traded globally, and a lot of these dollars are in the form of foreign reserves, and some even stockpile dollars in forex markets as it is next to gold in the safe haven list. So we really can not expect nations to simply drop all these foreign reserves or even exchange it for a new currency as it will be chaotic and troublesome, and the effect on trades and those currencies pegged against dollars, there will have to be a control body to govern this and there will be another economic meltdown. So as of now, Dollar will remain the global currency.

  4. Debt monetisation and Quantitative Easing- The public buys government debt from the US treasury and sells it off to the FED and now the FED has to pay for that debt for which it creates money out of thin air, this in the short term for smaller amounts may be covered up with growth in GDP, but if continued for long may lead to inflation. Quantitative Easing has been practised in the US and now amid Covid-19 will be even good as its problem of inflation is maybe just what the economy wants and the way the US has used QE to tackle recessions in the past has been inspiring.

The liquidity crisis and the future-

The major reason for the failures in the US or China for that matter previously was the liquidity crisis, where people just used to sit on the money they had and not invest that money. But now with the FED rates going up in past few years allowed more deposits, more investment in the stock market as the market grew after 08' crash and newer sectors were developed in the US moving in more FDI and Local Funds. So the future is quite good for the United States, these facts make some believe that yes, US is a superpower no wonder it has negative Balance of payments, but that is not a matter of concern as this can not make us neglect the export numbers of the United States. And finally, the Sovereign Wealth Funds of the US are so strong and actively investing that the savings problem of the FED has been dealt with and the US has a lot of money like a lot as savings in their treasuries, continuously making the economy boom.


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