Phenomenon of Fiscal Deficit - Essay Example

The American deficit in 2009 was around $1.8 trillion which was equal to 13.0 percent of gross domestic product (GDP). This deficit was $157 billion higher than what is expected. The additional spending to recover the economic sector from the current financial crisis was the major reason for the increase in deficit (An Analysis of the President’s Budgetary Proposals for the Fiscal Year 2010, p.1). America was one of the worst affected countries as far as the current recession is concerned.

Many big companies were on the verge of closing down unless the government helped them. The closedown of big companies will definitely increase the unemployment problem which the government doesn’t want to occur. So, the only option available in front of the government was to declare a stimulus package to pump money to the ailing economy. Since the gross domestic product growth was less, the pumping of money to the ailing economy may increase the fiscal deficit again and again which means each American’s debt was also increasing.

The Iraq and Afghan wars were also contributed heavily to America’s deficit. It is difficult for America to stop the military exercises in Afghanistan and Iraq before achieving the objectives. It is suicidal for America to stop these wars since neither of the objectives was achieved yet. At the same time, new war fronts are also on cards for America. For example, Iran’s efforts to acquire nuclear weapons cannot be watched silently by America. Many people believe that America will be forced to open another war front in Iran in order to prevent Iran from acquiring nuclear power.

Any such moves will again put the American economy in jeopardy. It is difficult for America to conduct wars in three different regions at the same time. The immediate stoppage of wars is the only possible solution in front of the Americans to reduce their debt and to recover their economy. India and China like countries are concentrating mainly on their economic developments and many experts believe that China and India may overcome America’s economy in near future itself. It is not desirable to America’s interests.

In short, America is undergoing an acid test currently because of the recession and the war on terror. Policies and strategies with vision and mission are needed for the time being for America to recover from this crisis and to reduce the debt of its citizens.