With the current economic crisis in place and the high rate of unemployment, it is without contest that building Western economy on the idea of credits was a bad decision from the inception. This discourse will focus on credit issues as it relates to government policies and the current unemployment in the United States.
While one may argue that the economic growth of developing nations is incomparable to that of the industrialized countries, both private and public debts of the developing world combined is not as much as debt incurred by the Western economy. An average credit card debt in the United States is about $6,000-$7,000 not to mention the car loans, the mortgage costs and other purchases, charged to the credit cards and allowed by banks just in the name of making profits even though, the creditor or financial institution knows the borrower may not have the means to repay.
When the economic planners established the policy of credits, they failed to put in place proper financial regulations to prevent credit agencies, banks, and other financial institutions from charging exorbitant fees and making excessive profits on the consumer. Rather, they are given the free will to charge whatever fees deemed proper, they are allowed to lend out money for home purchases they know the borrower is incapable to repay and eventually, such homes end up in foreclosures, the lender repossess making huge profits while the borrower, is left destitute in debt and without a home.
In some developing nations with no established credit agencies, people learn to live within their means, all expenses are based solely on their earnings, the policy is “cut your coat according to your size” and as a result, both private and public debts are minimal. Considering the current economy dilemma as it spreads like a virus, it is without doubt the credit system is nothing but a scheme to prey on the vulnerable, while at the same time enriching the privileged at the expense of the poor.
As the U.S. economy languishes while dealing with its own credit issues, elected officials and those in Congress are unsure of how to deal with the problem. The current economic crisis in Europe is imminent in the U.S. The events in France, Greece, Japan, Spain, and Zimbabwe to mention a few, may determine what is to come in America. Government in those nations made policy mistakes; for example, in 2008 and 2009, Zimbabwe economy suffered a downward turn. The nation went through a period of hyperinflation with prices of commodities rising so hard that even those with money to buy, could not afford the goods; the poor are left desperate and to make matters worse, goods and necessities such as food was hard to find.
To solve the problem, the Central Bank of Zimbabwe decided to print 100 trillion dollars to circulate around, the policy failed and the nation decided to abandon its currency for foreign money. There is talk that the U.S. Government may do the same since the U.S. owe so much that it may have to print money to boost the economy and create jobs.
Japan was a powerful economy up till the early 90s. Its economic strength attributed to the high-tech industries, manufacturing and electronics. However, bad economic policies and the burst stock market of the early 90s led to a downward economic growth for Japan. As of 2011, Japan owes so much that its survival is in question, as its leadership changed hands six times in seven years. The country’s auto industry which generates huge profits for the economy has recently been hit with accusations of poor mechanics and product malfunction. The current administration in the U.S. sees the failure of Japan to restore a robust economy and therefore, is trying to stimulate the economy via unconventional forms of monetary policy.
Recently, the U.S. government used public funds to bail out General Motors and other financial institutions as part of the efforts to stimulate the economy; however, whether the attempt is going to work, remains a question economist are unable to answer. Even though, the U.S. government was able to prevent a crash of the economy, the question still lingers as to whether the bailout was a good economic policy since the nation is still fighting high unemployment.
So far the U.S. debt is in the trillions and recently, there was a commotion in Congress as the Senate and the House fight over whether or not to increase the nation’s debt ceiling; even though, a compromise was reached to prop up the debt ceiling and increase America’s “credit line”, our leadership is yet to know what lies ahead for the U.S. economy. The current debt crisis in Greece, is a perfect example of what happens when a nation owes so much and unable to pay its debt. The result is that not only the nation that bears the weight of economic trouble, its populace is also forced to share the adverse effects of such a bad policy. Higher inflation, huge deficit, and unbearable austerity measures are among the challenges.
So far, we are beginning to feel the downturn in the U.S., people are finding it difficult to make ends meet, both State and Federal governments are cutting jobs in order to save money and those who survive on overtime hours, are seeing the hours cut meaning less pay. Even though, the U.S. government is yet to introduce austerity measures, the current economic experience will bear witness to the fact that one is indirectly in place.
While the U.S. government must introduce a budget deficit to control the size of government and spending, it must watch out for any policy that may trigger more job loss. For example, Spain unemployment is now at 21.5% with youth unemployment at about 50%, the construction and real estate boom of the 90s are close to being forgotten and is at the lowest in 15 years; why? The result of bad economic policies killing jobs. The U.S. is not immune from same, the real estate market has seen the worst downturn since the beginning of the crisis, the rate of foreclosures are higher than ever and currently, unemployment is said to be at 9.1%.
The 9.1% rate is doubtful as this may be just an estimate. It is possible unemployment in the U.S. is higher than 9.1% or closer to 15%; the government gathers unemployment statistics through the number of people filing for unemployment or claiming unemployment benefits but, there are thousands of unemployed Americans who either have never filed for unemployment or are unqualified to file because they have been out of work for a year or more so, how true is the current unemployment number?
American college graduates are finding it harder than ever to find employment. Some have waited 2-3 years looking for work and to make the situation worse, they are deep in college loan debt; another credit scheme that provides loan for education but no guarantee of job to pay it back. A bachelor degree that costs little or nothing in some European countries, costs about $25,000-$30,000 in the U.S. this may be the cost at a City or public college; a private institution costs more and education has become a business venture with private institutions established daily and charging whatever they desire in tuition.
To encourage the corrupt enterprise, the Federal and State government make available loans while both the government and the private banks charge interests they see appropriate. The student then pays the interests along with the principal for the rest of his/her life. With unemployment the way it is, no one will be able to pay back the loan meaning more economic woes for the nation and eventually insolvency.
Considering the policy on education, it should not be a problem to determine why the cost of healthcare is so high in America. Recently, Ben a New Yorker visited the dentist in Spain to have a crown done; he was shocked when told the procedure would cost him just 300 Euros a little less than $400. Normally, such a dental procedure costs $1,500 or more in the U.S. but why so high? The answer is in the cost of education in America. An average medical degree costs $400,000 in the U.S. while same costs you little or nothing in Spain and some other Western nations. On graduation, the new doctor must pay back thousands of dollars in debt including the cost of medical malpractice insurance; to pay back the loan, the doctor is forced to pass on the cost to his patients who end up paying the price for such a bad policy on education. This is what drives up the cost of healthcare in our nation.
The Obama administration may be doing the right thing with its current move to review issues of college loans and help give Americans burdened by such unreasonable costs a break. The move to institute a financial regulation may be a step in the right direction. Education should not cost so much; any system that puts the student in debt with no guarantee of employment, is nothing short of a fraudulent economic scheme and a poor enterprise where the government, the private institutions, and the banks are allowed huge profits on loans students don’t even get to lay their hands on.
With the ongoing housing bubble, the U.S. economy is moving to unwanted territory; many are fast losing their homes to foreclosures and many now owe more than the value of the home. The likes of Occupy Wall Street are examples of what is yet to come, a new wave of revolt to deliver the nation from poor economic policies that are killing jobs, destroying the middle class, and putting Americans deeper in debt. The U.S. is beginning to show signs of what may be called a “modern third world” riddled with unemployment, corrupt leadership, partisan politics, and confused economic policies.
This is the age of the “unemployed revolution.” Unless swift actions are taken to reverse the economic woes and bring back jobs to America, it won’t take long before the Arab Spring virus and the economic burst in Europe; find their ways to American shores. The unemployed and those feeling adverse effects of the economic bursts will revolt and when they do, the outcome may be difficult for the nation to contain.
Dr. Adeyemi Oshunrinade [E. JD] is a writer and published author. His specialization is general law, foreign relations and the United Nations.
Categories: U.S. Economy and Policies