The first problem, Pension Underfunding is a very large problem for the American Economy. According to certain independent studies, the underfunding that large companies have done for the pension plans will result in a very large public deficit in the future especially if the Pension Benefit Guaranty needs to bail out these companies. The problem here is that the present workers and future pensioners are working without any future security. There is no guarantee that upon retirement they will be able to receive anything.
This could spur an attitude of non-spending and result in an economic slowdown. Another effect that this problem could have is on the healthcare system. Without the financial security that the pension provides, the American healthcare system could bear the burden of millions of pensioners all seeking aid. The healthcare cost in the United States is becoming excessive and people are unable to afford or obtain any type of healthcare. It cannot be denied that there is something wrong with the system today.
The rate of the uninsured and underinsured is rising every year. Not having health coverage leads to 18,000 deaths a year (Davis 23). A Universal Health Care system is to ensure that all residents, regardless of their position in life, maintain coverage in the event of injury or the need to pursue a general practitioner. This type of system would increase taxpayer dollars, burden the government when funding is not available, cut funds from certain programs, and increase the number of patients to each nurse.
Thus, by having a weak pension fund the healthcare system of the United States could be affected thus increasing the financial burden upon the American government. The Second problem is the ever growing public debt. The recent economic slowdown as caused by the collapse of the Housing market has shown that there is no solid economic backing for many financial institutions. In an economy where the public debt has amounted to over seven trillion dollars (US$ 7 trillion), it becomes clear that this problem is something that the future generations will have to deal with.
The problem with having a huge amount of public debt is that it could affect the debt servicing of the country. At present, the United States spends nearly 10% of its Gross Domestic Product on debt servicing, with the increasing public debt and the maturity of these loans, the United States could have to increase the amount that it spends on paying back these loans. The end result of this is that there could be a slowdown in the development of public services and also in the construction of public works.
In order to meet these payments, the United States government could be forced to increase taxes and cut back on public spending. The net effect of this policy will be to make the economic struggle even worse. Without the necessary government spending, the public would be wary about spending and would instead focus more on saving in order to anticipate future economic reverses. This would result in a general economic stagnation.
Analogous to the collapse of the Housing sector is the collapse of the very houses that are erected. It may be unfortunate to state that the woes of the Housing sector have only just begun but that is the case at the present. The overbuilding that has happened in coastal areas and earthquake territories can result in massive property damages. As the aftermath of Hurricane Katrina has shown, a single powerful hurricane could instantly wipe out billions of dollars worth of infrastructure.