United States Debt and the Impact upon the Global Community

Introduction

The changes in the macroeconomic dynamics of the United States of America after the 1980s were marked by the substantial increases in the nation’s overall debt, which has had a manifold impact upon both the U.S. and the other nation-states. As it was noted by Bohn (1998), the main feature of the U.S. debt-GDP ratio lies in the fact that the U.S. primary surplus serves as the positive function of the latter, leading to the direct dependence between the U.S. economic growth and debt changes. At the same time, other nations are likewise dependent upon the U.S. debt’s permanent fluctuations. Hence, the purpose of this paper is to uncover the impact of the U.S. national debt strategies on the global economy, with the particular attention being paid to such issues as the general changes in global business administration, business ethics and social responsibility, economic challenges facing contemporary business , and global competition. Proceeding from the discussion of the aforementioned problems, certain conclusions on the capacity of the U.S. debt management policies to live up to the demands of the global business management may be presented, and some consequences thereof for the economic development of the globe will be posited.

The changing face of business and the U.S. debt

The present business environment in the USA and abroad is increasingly characterized by the rise of such trends as outsourcing, workforce diversification, emphasis on the organizational change, and the gradual shift in balance of power toward Third World nations. Accordingly, the key trends of the U.S. public debt management would appear to correlate with the processes typical for the business administration at large.

Just as the U.S. businesses seek to outsource their production in order to gain access to the cheaper labor markets and to produce goods and services in the lower-cost regions and nations, the United States government would appear to increasingly rely upon foreign lending to satisfy its fiscal and debt management needs. The total share of the U.S. Federal debt held by foreign lenders as of January 2011 was tantamount to $4.45 trillion, which would be equal to 32% of the overall United States debt (Treasury Direct, January 2011). This would represent a significant increase over the initial levels of the U.S. debt’s foreign holding, pointing toward the shifting dynamics of global economic power.

Aizenman and Marion (2011) refer to the increased burden of the U.S. debt payments upon the taxpayers as extraordinary in the post-WW II period; however, at the same time, these authors surmise that the perceived ‘threat’ of the U.S. debt’s foreign lenders has been overestimated. Proceeding from the data of the 20thto 21st century U.S. debt’s inflationary adjustment, Aizenman and Marion demonstrate how the temptation to inflate the U.S. debt would at the same time lead to increased tax levied upon the foreign lenders, subsequently diminishing their effective share of the debt holding (Aizenman & Marion, 2011, p.535). Nonetheless, the authors believe that inflationary debt adjustment as practiced by the Fed after the onset of the 2008 financial crisis would be more problematic nowadays than in post-1945 era. In Aizenman and Marion’s opinion, “higher share of debt held by foreigners” would simultaneously reduce the capital losses endured by domestic consumers, leading to the attainment of optimal inflation rate (Aizenman & Marion, 2011, p.536).

Hence, the U.S. debt outsourcing, just as the general business outsourcing, would have both negative and positive impact upon the U.S. consumers. At the same time, Kirshner (2008) duly notes that the foreign creditors, including the governments of the emerging markets’ nations, will be forced to continue to subsidize the U.S. national debt and the dollar primacy in the global sovereign debt markets, as the competitive advantages offered by the U.S. economic and political power would far outstrip the considerations of the U.S. debt management’s long-term unsustainability.

Business ethics and social responsibility

The question of social responsibility would appear to feature high upon the list of the modern business’s priorities. It is generally assumed that the satisfaction of the needs of general public would be an integral part of the modern business’s functioning. Accordingly, the U.S. public debt management would have to conform to this tenet as well.

According to Eichengreen et al. (2011), the main problem to be faced by the debt management authority in the case of the nations with democratically elected political bodies is that of situating the issue of debt burden within the context of common pool problem of public finances, which is inextricably connected with the problems inherent in allocating the respective share of public finances to the stated budgetary needs. In case of the United States of America, the bulk of the expenditures implied in the public debt servicing is directly connected to the liabilities of the Federal government held by the public, which grew from $10.8 trillion to $17.8 trillion between 2007 and 2011 (Liu, Rettenmaier, & Saving, 2012, p.5). Furthermore, such liabilities as those connected with federal pensions and other post-employment benefits (OPEB) account for the further increases in the public-held Federal government’s liabilities, growing from $5.3 trillion to $5.8 trillion in 2008-2011 (Liu, Rettenmaier, & Saving, 2012, p.5). Together, the public debt increases connected with the Federal government’s attempts to meet its socioeconomic obligations before the U.S. citizens may be equal to 33% of all increases having taken place as of 2011 (Liu, Rettenmaier, & Saving, 2012, p.5).

Thus, it may be evident that the growth in public debt of the United States of America has been strongly correlated with the ethical and social obligations of the Federal government before America’s population. In this respect, one may surmise that excessive focus on the benefits would generally increase the borrower’s liabilities, leading to adverse effects upon the nation’s general revenues.

Economic challenges facing contemporary business

The factors of supply and demand have the crucial impact on the contemporary business’s performance, just as it was the case with the business in previous eras. As to the U.S. public debt management, it is characterized by its strong reliance on the key capital markets, signifying the need for strategic thinking in order to attract greater financial resources. However, the lagging economic recovery of the United States after the Great Recession, as well as the problems associated with decreasing competitiveness and the business cycle challenges, would appear to confront the U.S. policy makers with the need to elaborate a more complex capital markets strategy, so as to maintain the U.S. debt financing.

Hoogvelt (2010) points toward the instrumental role played by the dominance of the U.S. private capital markets institutions, such as hedge funds, at the global and regional financial markets, which was underscored by the increased toleration of such rather ambiguous financial institutions by the U.S. regulators. The use of hedge funds as similar institutions as the sources of mobilization of capital into the U.S. economy may be construed as an indirect method of attracting additional capital funds into the U.S. economy. However, at the same time, the major challenges associated with the increased competition in global capital markets, as well as the continuing turmoil in the field of international finance, would lead to the growing difficulties for the U.S. debt management, which would stress the need for the diversification of its capital sources.

Competing in world markets

Hence, the problem of international competition and the U.S. debt’s impact upon it would present itself. The increasingly sharp competition of the foreign borrower nations in attracting new debt packages may lead one to contemplate the need for further global regulation of the national debts, including the American one. As noted by Berberoglu (2012), the growth in the U.S Treasury securities’ capitalization would logically entail the appreciation of the U.S. dollar and the subsequent worsening of the U.S. competitiveness in the global markets. Hence, the increases in the U.S. external debt would paradoxically reverberate in the global economy at large, as the foreign lenders effectively contribute to the decrease in the U.S. competitiveness. Thus, a conclusion may be reached that the excessive reliance on foreign lenders would actually worsen the U.S. economic competitiveness, contributing to the mastery of the global economy by the emerging markets actors.

Conclusion

Proceeding from the aforementioned, it would appear that the U.S. public debt has manifold consequences for the United States as one of the global community’s principal political actors. While the maintenance of high spending rates enables the United States to maintain its role as a guarantor of global security and economic stability, at the same time, it places significant constraints upon its international competitiveness, allowing the emerging markets’ nations to play a more proactive role in the global market. In particular, the important role of foreign lenders in raising a substantial portion of the U.S. public debt would indicate the former’s willingness to subsidize the role of the U.S. dollar as the world’s principal reserve currency. This, in turn, demonstrates the integrated and interrelated character of the present global economy.