US Economy Befuddled by Party Politics

Best Growth Stock The uprising in the middle-east is creating troubles for the US policy-makers. Their trouble is further aggravated by the dispute between the Democrats and the Republicans. The views of the Democrats led by President Barack Obama regarding budget deficit and spending cuts have thrown the Republicans in protests.

The principal political pitfalls to watch out for in the United States are as follows. It is feared that the budget deficit will reach a remarkable $1.645 trillion this fiscal year. It is 10.9% of US GDP. The two leading political parties have different opinions about how to reduce the spending to close the fiscal gap. After many meetings they fail to come to any reconciliation.

Therefore an investor should be careful about some factors. The investor should be ready for a possible government shut-down. Both chambers of Congress are required to come to an agreement regarding the stopgap bill by March 4. their failure to do so will result in the shutdown of nonessential government operations due to insufficient financial funding. This will cast a negative effect on the financial market. 800,000 federal workers will lose their jobs temporarily. However, the danger is not as near as we fear. The two parties have almost come to a settlement to keep the government running for two weeks. So the next week is not threatened by any possibility of shutdown. But the threat has not disappeared altogether. The two parties have a huge difference opinion regarding a spending bill.

The disagreement regarding the reduction of spending is mainly about the amount. President Obama has proposed a freeze of $400 billion over the next ten years. But the Republicans want to freeze a larger amount. In February a bill was approved to reduce spending by $61 billion over the next six months. Expert Goldman Sachs says that US Economic growth will face a huge challenge posed by these reductions.

The reduction in expenditure has led the Congress to a situation where they are facing the possibility to have to raise the US Government debt limit. The debt limit is currently $14.3 trillion. If the limit is not raised the United States will become the defaulter in its loans by April or May. This will have hugely negative aftermath on the US economy. But the Democrats and the Republicans are likely to come to a positive agreement regarding raising the debt limit.

Although the government is burdened with debt, yet surprisingly customers are not shying away from buying Government bonds even at low interest. But there is the possibility that investors might lose their faith in the Governmental policies to rejuvenate the investment finances. They might deny to cheaply finance US spending. In such a situation the government will have to raise taxes and to formulate rigorous policies to cut expenditure.

The problem is made more complicated by the political muddle in the government. While the Democrats still hold the senate, the Republicans won the House in January. Hence, any bill has to get the approval of both the parties, which is a difficult situation. For example President Obama wants a tax reform but the Republicans are determined not to support this issue.