The Anglo-American Model of Debt Management

Date:  2021-04-19 19:43:51
7 pages  (1743 words)
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The implication of national debt management on the economy of a given country defines the nature of macroeconomic shifts associated with growth and development. The changes in the level of consumption demand within a particular country depend on how the state manages its expenditures. A critical analysis of how countries use government debt to transform their national income depicts rising interest rates, increasing private investment, lower inflation, and high GDP. However, increasing national debt has been associated with negative implication on the performance of some states. Therefore, the use of government financial policy is essential in the management of the externalities regarding the need and use of public debt (Choice Reviews, 2006). The balance between taxation mechanisms and borrowing capacity is an important consideration for policymakers and financial consultants based on long-term needs. Nevertheless, developed nations have been associated with rising levels of government debt contrary to their high GDP and per capita income. Research regarding the implication of the use of the Anglo-American model of debt management on developed economies such as the United Kingdom and the United States is needed in line with the regulation school and capaitalism diversity approach.

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Research Background

Each country is endowed with natural resources and factors of production, which differs from one country to another. The imbalance that exists between the needs of the country and the existing national income capacity presents financial challenges. Such scenarios call for the establishment of an alternative approach for funding governments income-generating activities. National borrowing is one of the most common measures that most countries have resorted whenever there is a fiscal deficit to fund public investments. On the other hand, the economic recession has a negative effect on the financial stability of a country, which could encourage public borrowing. Rebecca (2013) pointed out how the economic downturn in 2008 and 2009 affected the European countries affecting their national debt to GDP ratio. Grigorev and Salikhov (2009) affirmed the same sentiments by pointing out how developed countries faced budgetary deficits because of the recession. The need to cushion the level of expenditure was the direct approach for most states, which led to increasing debt margin. Although the move to consider borrowing as an alternative measure to funding public spending, the technique is limited to a specific level of growth and development. When the level is exceeded then the externalities associated with excessive borrowing may affect the standard of sustainability of a nation.

Checherita and Rother (2010) showed that the most countries between 1913 and 1990 depicted an alarming change in the borrowing capacities such that the increasing national debt changed averagely from 12% to over 46%. Such changes indicate the inability of most states to fund their expenditures from the internal national income entirely. The European economies have been associated with a high trend of national debt increase, which presents the need for the analysis of implications emanating from such changes. The objective of borrowing among developed states is to guarantee a smooth transition within socioeconomic dimensions such as the rate at which the household exhibit a smooth consumption lifecycle and formation of additional capital. However, the ability of a state to formulate appropriate policies to inform decision processes is based on the long-term planning and risk sharing, which differ across countries. The deadweight loss in the economy affects the level to which national debt correlates to development and growth. Such a case originates from the possibility of the cost of collecting tax being more than the expected direct revenue. Moreover, the infeasible taxation approaches and poor timing of the distortionary taxes contribute to the externalities associated with borrowing such as the financial burdens.

Moreover, persistent labor market, as well as the growing entrepreneurial culture in developed nations, creates an essential external environment, which requires infrastructural development to enhance development and growth. The ability to set up a culture of innovation depends on the capacity of the central government to run initiatives that will transform national income. However, the collected revenue may not balance with the future labor income, which leads to borrowing. In states such as the United States and the United Kingdom, the volatility of the economy due to declining circulating income could present adverse implications and long-term challenges for different sectors of the economy. Such possibilities are based on the nature of the capital-intensive economies characterizing the two nations (Choice Reviews, 2006). Moreover, understanding the impacts of increasing national debts associated with countries with a high per capita income and GDP is essential for rectification measures through financial policing and strategic planning. The control of state income performance has been a consideration for the developed economies in line with the downsizing of the public debt.

Statement of the Problem

Worth noting is that the America and the Britain have used the Treasury securities to borrow money from the public and international institutions and agencies. For the United States, the origin of the national debt emanated from the federal borrowing during the American Revolutionary war in 1789. Since then, the country has been associated with a fluctuating public debt, which depicts a common, increasing trend (Choice Reviews, 2008). Although the post-war economic rejuvenation led to a declining debt, the shifts in production and labor equilibrium caused a fluctuating performance. The minimum percentage of national debt expressed as a value of the cumulative GDP experienced in the United States remains to be about 24% during the post-war period. A similar trend is common in the historical performance of the United Kingdom in line with the national borrowing. The current rate stands at about 80%, which originated from the continuous budgetary deficit. Although the recently downgraded rating of the United Kingdoms national debt standing hints a possible decreasing trend, the country has been unable to cushion the shortfall in public spending in line with the collected revenue. Therefore, two countries have been keen in controlling their economic performance through strategic spending to prevent further increase in national debt (Choice Reviews, 2006; Choice Reviews, 2008). Nevertheless, the trend still depicts a high level of public borrowing from international agencies and through government securities.

Such a scenario presents the need to evaluate the reasons why developed economies such as the United States and the United Kingdom are associated with excess and continuous borrowing. A high per capita income and GDP growth rate are indicators used to measure economic development and financial stability across nations. A final approach would expect the two countries to have the lowest rate of borrowing. Nevertheless, the reasons behind the increasing rate of borrowing characterizing the two nations require a comprehensive analysis through a systematic review of existing literature. The assessment of data relating to the annual national debt performance for each country is critical in unraveling the causes and implications of excessive borrowing among stable economies (Swedberg, 2012). Although limited literature exists regarding the effect of the tendency to borrow emanating from the continuous budgetary deficit, this study presented a clear understanding in line with the use of Anglo American model of debt management on developed economies such as the United Kingdom and the United States is needed in line with the regulation school and capaitalism diversity approach.

Justification of the Study

The major global events and occurrences such as war and globalization of markets have generated an economic shift with the capacity to favor or downgrade the financial performance of nations. For example, most countries have been noted to depend on external support to fund the public projects and expenditures. One of the important global phenomena that altered the financial stability of developed economies is the 2008/2009 crisis (Swedberg, 2012). States such as the United States and the United Kingdom were affected, which led to economic volatility. The increase imbalance between the national income injections and withdrawals led to deficits that needed external funding for sustainability of national growth and development. The United States has channeled resources and expertise to assist in setting up measures to control the increasing national debt. Such approaches are common for developed economies despite the high per capita income and stable GDP. The United Kingdom has stable inflation and interest rates, which is expected to the associated with a low national debt; however, the country has a notable history of external borrowing to sustain the economy. The existence of such economic tendencies presents the need for a comprehensive analysis and evaluation of the approaches used to control debt.

On the other hand, increasing borrowing has been linked to developing and emerging markets as opposed to financially stable states. Therefore, whenever high public debt characterizes countries such as the United States and the United Kingdom, then it is necessary to examine and assess implications of the measure on the short-term and long-term performance of the countries in line with development goals. Rebecca (2013) and Checherita and Rother (2010) pointed out how the knowledge regarding the capacity of states to control their resources for maximum monetary is critical for the nationalization of private and public debt. One of the greatest challenges for most developed countries is the management of the financial stimulus packages, which hints the level of success in balancing national income and expenditure (Swedberg, 2012). A study that will present the causes, implication, mitigation methodologies and future dimensions associated with increasing debt among developed economies are essential for strategic planning of the mitigation measures especially when focused on the Anglo American Model. On the other hand, having a clear picture whether the model is sustainable for developed economies as well as threats associated with the approach will be critical in advancing the knowledge regarding debt management.

Objective and Scope of the Study

The purpose of the research was to carry out a comprehensive evaluation of the use of Anglo American model of debt management on developed economies such as the United Kingdom and the United States is needed in line with the regulation school and capaitalism diversity approach. The need for the study was based on the recent economic shifts in budgetary deficit among developed states such as the United Kingdom and the United States (Choice Reviews, 2006; Rebecca, 2013). Therefore, it is necessary to analyze the implication of excessive borrowing in line with the size of the GDP and per capita income. The study considered the United States and the United Kingdom as the countries of reference. The public debt data respective for each country was essential in presenting the baseline for evaluating the trends and implications. The study focused on the current trends associated with national debt among developed states with the objective of assessing the historical and future expectations regarding the acquisition of external funds to ca...

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