Characterization of the current US Fiscal Policy Stance: Expansionary or Contractionary

To go over the main points of a fiscal policy, a fiscal policy concentrates on government spending, income from taxes, and the measures of each figure versus the other figure based on budget. These figures are then collected and carried into an appropriate fiscal policy ratio category, such as neutral, expansionary, and contractionary. Each category possesses a likeness of characteristics, but provide a contrast of purpose and result.

Important characteristics that play a large role with the current US fiscal policy are the expenditures of the government budget, income, and how these expenditures affect the US economy, especially the monies on loan which increase national debt. In a five-year period since 2004 to date, from fiscal year to year, the United States Governments’ numbers of expenditures for a reasonable capacity of national agencies, continue to raise the homeland’s debt to settle at a dollar amount of over $8 Billion. Within the realm of increased expenditures and the rising consumption of goods and services, the US fiscal policy is evidently expansionary. It is also evident that majority of the government spending is a considerably greater amount than the returns on their expenses (considering the more recent, domestic bail outs); therefore increasing a higher debt to income ratio to prove the US fiscal policy as not being contractionary. Majority of the government’s budget occur from expenses on the Department of Defense, Health and Human Services, and the US Treasury Department; and illustrate our US stance on fiscal policy and supports our categorical characteristics of expansionary.

However, although these conclusions may follow my analysis, they can be debatable. For instance: it is true, that if we try to curb public deficit/debt, now, we should only raise taxes and this would trigger a recession no one wants! However, we do pay a cost if public deficit and debt keep on rising. So, where is the right balance?

As there are so many factors that go into the U.S’s fiscal policy and the economy. As I include public debt, interest rates, mortgage rate, and the overall housing sector in this confusing equation, personally, this is how I look at it:

Since the presidency of Ronald Reagan and approximately 2 decades moving into 2009, the national debt has done nothing but increase in figures (this is merely how far I went back). This debt held by the public will not disappear in any near future, but does however, possess an impact on the government and economy each fiscal year. If we manage our economy through one stance, for example, allowing the deficit to rise, markets and the economy will be affected. If we manage our economy in a different stance, for example, raising taxes, the economy will be affected. It seems like a catch 22 if you ask me.

For these past 2 decades, our economy has been driven through a storm of rising rates/lowering rates, market hurdles, tax increases/decreases, but yet we still survive. I too ask myself and ask every professional out there, “where is the right balance?” Honestly, I don’t believe there should ever be a balance. And if there were a balance, the economy would take its course to unbalance the balance.

So this is what I believe and is my opinion: The governments’ expenditures from budget is the foundation of the ripple effect into rising rates, taxation, the rising figures of debt, and affects every economic indicator. But this is not all of the government’s doing. Most of the government expenditures are from public pressures (i.e. income, housing, etc) that affect each spending factor, such as defense, health, social security, and the whole list. If we throw a stone into more and more spending, it ripples above government income and increases the public debt to a certain amount. This I can live with. If the HPI decreases and slows down or even suffers through a slow down? Although I would be affected, this I can live with. If interest rates go up, this I can live with. What I wouldn’t be able to live with is if the whole economy suffers from a great depression. Increased Taxes, again in my opinion, will affect the whole economy, especially GDP, whereas the housing market (to include builders and rates) affect only a partial percentage of the GDP. Im certain the housing market will too affect income and other factors, but overall, I suppose what I am trying to say is that there is no a happy ending; each method will affect something, someone, somehow...