Economic Crisis in the United

¶ … economic crisis in the United States?

There is no single cause that can be made responsible for the crisis. The crisis is a result of political, economic and social situation that developed on a global scale and which has affected many nations. There is a monetary crisis as well as economic crisis. The global financial crisis affected all nations alike and one of the causes of the depression is blamed on globalization which according to experts has caused deflation, to sub-prime lending, especially in the U.S.A. Sub-prime lending is the method by which banks are provided funds by the central bank and is a source of bank collapses. The sub-prime mortgages in the U.S. In 2007 when the current crisis began stood at $1.3 million and rose to $100 million by 2008. It resulted in the burst of the housing and the real-estate bubble causing the sub-prime crisis that made the lenders withdraw from the market. (Jansen; Beulig; Linsmann, 88)

The economic crisis relates to lower buying power, joblessness, less aggregate demand and very high taxes. The corporate taxes as it can be examined caused the spiral that resulted in the crisis. There is also an argument that it is the credit crisis that resulted in the financial crisis and this affected the investment and thus the whole economy in a chain reaction. (Muller, 28) Generally it is the higher rate of taxes that caused a spiral of inflation and subsequently deflation. Richard C. Cook also blames it on the failure of the U.S. government which according to him caused the crisis. It is argued that the U.S. had a collapse of the nation's manufacturing base that was caused when the Federal Reserve raised interest rates "to over the twenty percent level." (Cook, Economic Crisis: The U.S. Political Leadership Has Failed)

But the major culprit in general was the tax policies that drove the entrepreneurs and business to the wall, causing the collapse. Tax in the U.S. On corporate income is so heavy -- 40% to be specific that multinationals and even small firms have made it a point to reincorporate in some other country and thus avoid taxes in the U.S. This has given rise to complications in the U.S. economy because jobs and investment thus are all shifted outside and the resultant depression has become acute. (Brue, 234) There is a lot of capital that was and is being invested outside because of the excessive income tax levied on corporations, and the second issue is of turning a blind eye to the problem of the tax burden. This resulted in companies venturing abroad and investments moving abroad. Politicians blame the joblessness on the companies leaving America but fail to point out that the tax burdens are excessive and are the main reason.

Chris Edwards contends that major financial and investment decisions are taken with a view to find tax shelters. This is exactly what Enron did and the Enron-style tax sheltering has become a major corporate tax scandal. The problem of overburden of corporate which make them find tax havens or those countries with low-tax jurisdictions are also affecting Wall Street which also then brought on a market collapse. Thus if the taxation policy is shifted, it is possible to create a better situation. Taxes that are now current can be abolished if their contributions are minor. On the other hand taxes can be levied on things that are considered harmful like tobacco and drugs. This will be discussed when the remedies are sought to be established. (Edwards, 292)

"What should be done to resolve it most effectively?"

Tax cuts and abolishing some taxes can be effective with increased government spending. John Meynard Keynes advocated government spending as a method of getting over recession. Therefore a deep consideration of the federal government budget is in order. The budget uses the taxes, and spending by government to reach the desired equilibrium and thus the taxes, and spending are often beyond the general equilibrium and hence budgets are always unbalanced. To control inflation taxes are raised and spending reduced. Like wise in a recession the taxes are reduced and the spending increased. Thus the budget could end in a surplus or deficit as the situation warrants. (Carbaugh, 311) The combination of the monetary policy and the Federal spending are instrumental in bringing about relief from recession and in the opposite side bringing down inflation. Closely allied with the budget are the fiscal policy and deficit spending which increases the interest rates and cause reduction in private spending, causing the state of recession. (Brue, 236)