Macro Economic Situation What Is the \"Current

¶ … Macro Economic Situation

What is the "current macroeconomic situation" (e.g. worrying about inflation and/or recession) in the U.S.

The current macroeconomic situation in the U.S. is that there are worries about: the national debt, rising interest rates and a double dip recession. The rising national debt is troubling, because this will have a direct impact on the financial markets and interest rates over the long-term. Recently, there have been concerns that if the debt ceiling is not increased, the U.S. government will begin defaulting on its obligations. This is problematic, because it means that interest rates for any kind of Treasury securities will be higher (as a downgrade in their credit rating would be inevitable in this situation). (Watkins, 2011)

Rising interest rates are a possibility, because the Federal Open Market Committee was focused on: purchasing Treasury securities, commercial paper and providing ample amounts of liquidity to the financial system. This was a part of an effort to prevent the recession that started in 2007 from becoming worse. Now, that the economy has recovered somewhat, there will be the inevitable unwinding of the stimulus. This means that interest rates will be increasing over the long-term. ("Lehman," 2011)

A double dip recession is quickly becoming a probability. This is due to the fact that the federal government and states have been aggressively cutting spending to deal with rising deficits. At the same time, the Fed is removing the massive amounts of liquidity that it pumped into the financial system. While commodity prices, (i.e. crude oil) have been well above $100 per barrel. These different elements are important, because they are indicating that the economy is beginning to slow. This raises the odds that some kind of secondary recession could occur in the next year. ("Import Prices Rise of 8th Straight Month," 2011)

Evidence of this can be seen with home prices falling to the 2009 lows. This is a sign that buyers are reluctant to purchase houses and no financing is available. Given the fact that commodity prices are rising, consumers will be more hesitant about spending. While, the stimulus packages winding down and the tight spending restraints from the government are: illustrating how there is no other support for the economy. This is when the possibility of a double dip recession becomes even more likely. ("Import Prices Rise of 8th Straight Month," 2011)

What should the U.S. Congress and the Federal Reserve do about it?

Congress should consider the possibility of: making tough budget cuts and restricting various entitlement programs (i.e. Social Security and Medicare). At the same time, they need to raise taxes. If this kind of technique can be used, it will help to address the concerns of the financial markets. This will make certain that the government maintains their strong credit rating and keeps interest rates low.