Dear President, it is of great concern that America is faced with lots of problems ranging from financial instability to the establishment of the U.S policy on climate change as well as engaging economic powers. This letter contains timely analysis of key issues facing Americans along with solution recommendations.
To start with, American Financial systems careened in 2008 on the edge of meltdown, which made the U.S government to become the guarantor lender as well as investor as the last resort. Regardless of what is going in America, the world people are not enthusiastic, and will never be about the adoption off free market principles that guides U.S financial development. In addition, the current interventions made by the U.S government ends up making it more difficult to convince other nation that the States ought to stay out of financial working system. It is much clear that, there is no way financial innovations are going to work in the absence of effective and efficient regulations. The current financial markets that tend to be much sophisticated have dangers that lurk in hidden places. As a result, America has failed to slightly resist regulated financial innovations which as an effect have made America to pummel unfolding market crisis.
One thing, that this America’s financial crisis proves, is that, government interference, corruption and fraud, have the ability of eating away the roots of deepest financial systems. This is in when such problems end up being compounded by regulatory systems that are too narrow apart from being rule-bound in its outlook, which a times might end up turning a blind eye to obviously rot in some systems.
In dealing with financial market crisis, it is good if the president can work together with the international community width the aim of coming up with a common agenda which will assist in managing capital flow. However, the risk with this strategy is that, each group of countries depending on their development and openness level to international financial markets, might end up having different perspective on the agenda; in other words, Joint actions might be based on common interest themes. So, U.S being the largest economy on the planet, as well as the key player in the international financial markets, the US government has its own system of making the strategy to work very well.
Studies stated that, “The current U S financial crisis indicates that a set of rigid rules allows resourceful financial institutions to mask riskiness in their portfolios or shift things around to make standard risk metrics appear better than they really are” (Lombardi 234). As a result, the government should not opt for regulatory framework which accounts for every financial instrument along with institution, but the government should adopt principle based framework that allows the evolution of financial markets. This will allow central government to adopt a broader approach to the management of systematic risks.
In this framework, the government should address fiscal problem facing U.S funder, which different strategies deal with U.S budget deficits, that has led to the sharp fall of the dollar and current account deficit. The government should also address the issue of managing capital flow; through which the government ought to encourage initiatives like those undertaken by IMF that creates operating procedure standards for SWFs. this will be much helpful especially in allowing them to be monitored well, in the exchange for few restrictions on opportunities of investments that is made available to such institutions. The framework should also address currency issues; where by, countries like China will be encouraged to give room for greater flexibility in their rates of exchange. Though some economists have argued that, prolonged currency market intervention creates financial markets instability, which at the end will hurt the countries that are trying to forestall currency instability. The framework ought to address Global governance, under which, governance structures of international financial bodies like IMF along with the World Bank will be changed, this will ensure such institutions maintain their relevance particularly in emerging markets, as well as poor countries, which have to be given prominent say in their running.
Both climate and energy issues are the most urgent problems America is facing . Such issues are calling for immediate actions in the creation of policy framework that enables timely reductions in the greenhouse gas emissions, while at the same time minimizing the economic burden on American workforce. There have been no strategies of developing coherent and executive that will navigate a complex congressional landscape, which will then ensure that American priorities are lined with the shaping of post-Kyoto protocol international climate treaty. Provided with economic implications of changing the U.S energy systems along with environmental necessity for greenhouse gas emission reduction, there is need for the government to come up with a climate protection strategy whose implementation will cut emissions while at the same time protecting the American economy. However, there has been no easy balance.
Despite recent increase in greenhouse gas emissions in U.S as well as other developing nations, the country as a whole has to reengage on the UN framework Convention on Climate Change process and ensure serious emission reduction domestically.
In dealing with this issue, the US government has the opportunity of using the cap-and-trade programs in setting modest but growing prices on carbon as well as other gasses causing greenhouse gas effects. The process of shifting to a low-carbon system calls for not only large, but also long term investments by all economy sectors. However, in the process of encouraging them, the government has to provide very clear predictable long term payoffs through modest “but credibly increasing price for emitting greenhouse gases” (Lael & Sorkin 56). For instance, provision of price incentives has the ability of providing low-greenhouse gas economy.
The government can also deal with climate change issue by just keeping it much simpler. Though a times the government might be tempted to provide a very comprehensive energy plan which in one way or the other has the ability of favoring some sectors, and along with certain technologies, but the government can “introduce goals other than climate protection and create new institutions, the simpler the better—both now and in the long run” (Keyant 110). Such simple methods include low carbon fuel standards, use of biofuels, and renewable portfolio standards which have the ability of raising costs by dictating ways through which Cap has to be used. Other unintended strategies include deforestation along with higher food prices. This will tend to provide some reduction through carbon capture.
Another strategy is the creation of incentives which will end up sustaining the greenhouse gas emission reduction programs. Under this, government will only allow firms to invest in fin new technologies which will endure and grow greenhouse gas emission prices. In this strategy, different mechanisms might be employed, ranging from the creation of multi-year emission allowances to the so-called auctioning allowances which will not be valid till the following year. As a matter of fact, creation of future emission rights which can be traded other than being used today will create consistency of owners of permits who will be having a very strong financial interests in continued climate protection. In early stages, this will bring in more revenues which will be used in carrying out research and development.
Another strategy of dealing with climate and energy issues is selling allowances and recycling the revenue. It has been argued that “Pricing carbon raises the prices of goods and services more broadly, effectively reducing the value of working families’ wages, which are already subject to payroll and income taxes. The cost of this important ‘tax interaction effect’ to the economy could be even higher than the direct cost of abating greenhouse gas emissions” . However, what the government has not realized is that, it can use revenues from allowance sales in the process of lowering other taxes, or even covering up other federal deficits, which at the end, offsets the burden in a very significant manner.
Another issue facing America as a country is that, its financial regulatory system has failed; adding another blow to our country’s standing worldwide over the past 10 years. This has been troubling against the backdrop of new powers’ emergence, especially China, India, Russia or even Brazil. As a result, the country is facing a very critical issue of maintaining and restoring its leadership. It should be noted that, our involvement in post-conflict reconstruction in Afghanistan and Iraq, along with humanitarian disasters, have resulted to a faster rate of “expansion of foreign assistance dollars in the last seven years than at any point since the Cold War”.
In dealing with this issue, the government can elevate development assistance which will “equate stature and independent standing alongside defense and diplomacy by aligning resources and capabilities with goals” (Brainard 34). There should be a cabinet level voice for development, which will be empowered width the responsibility of serving as a bold commitment in ensuring commitment against the subordinates of long term investments in the process of democratization, poverty alleviation, and development to short term political goals.
The government can also strengthen U.S civilian abilities in assistance provision in weak and failing states. This should be done through civilian capacity bolstering for the prevention of conflicts, stabilization and restructuring both inside the government as well as in reserves. This will “increase the seniority of White House coordination; and ensure linkages between interagency planning and foreign assistance operations”.