The current account is a component of the balance of payments. The balance of payments account is a record of all financial dealings over a period of time between economic agents of one country and all other countries. The current account records the trade in goods and services, as well as transfers and income flows. We say that the current account is in deficit when imports are greater than exports. The UK has been in a current account deficit since 2000 of an average 2.4% of GDP. This means that what is flowing out of the UK from trade in goods and services are more than what is flowing into the country.
The UK currently has an inflation rate of 2.3% and has generally been quite low in the UK economy. However, before the financial crisis of 2008 – resulted by deregulation of banks in the US – the inflation rate was 2% and this then increased to 5.2% during the crisis. The first bank to go bankrupt was Lehman Brothers, which was then followed by many other banks that became bankrupt. This resulted in crashes in other economies around the world. So, what is the link between inflation rate and the current account deficit? Well, an increase in the inflation rate, increases the prices of commodities (a raw material that can be bought or sold) which means that the costs of production for firms increase too (as commodities are needed in order to make products). As well as this, as the inflation rate rises, real wages (nominal wages adjusted for inflation) begins to fall so trade unions (a supply-side policy) may negotiate for higher wages as their aim is to maximise their welfare at their work. This will also lead to an increase in costs of production for firms as wages are one of the biggest parts of a firms’ costs of production. Firms will then increase the price of the good or service in order to maximise their own utility (profit). So higher prices makes UK goods less competitive internationally, and demand for UK exports decrease relatively to imports. Therefore, as imports increase and exports decrease relative to each other, the current account deficit worsens. As the inflation rate has constantly been changing (increasing and then decreasing and then increasing again) in the UK, it means that our economy is constantly in a deficit.
Furthermore, a current account deficit can also be caused by a rise in the exchange rate. At present, exchange rates have been falling but during the Financial Crisis of 2008 exchange rates rose by around 25%. This was because people started to want to sell stocks and highly liquid assets for dollars. This demand for cash appreciated the dollar, same as in other countries with their currency. A rise in the exchange rate means that the pound is strong. This means that imports would be cheaper to buy and exports would be more expensive to buy. So the demand for imports rises and the demand for exports decreases. This means that the size of the current account deficit worsens as imports are greater than exports. Similarly, a fall in incomes abroad means that incomes of foreign buyers fall due to a lack of economic growth in their economy (perhaps a recession). This means that they will demand less of UK exports. This also increases the size of the current account deficit as exports decrease. The effects of the financial crisis of 2008 still haven’t entirely been removed as we can see looking at the current account deficit as it was the biggest following 2008.
Obamacare is a nickname for the Patient Protection and Affordable Care Act (often shortened to Affordable Care Act, ACA). In 2010, President Obama and Congress signed ACA into the law. They wanted all Americans to be able to get health insurance. They also wanted to lower the cost of healthcare. Unlike in the UK, in the US, in order to receive health care, you have to pay. Going to the doctor or the hospital has become very expensive and health care costs are the number one reason of bankruptcy in the US. For example, one visit to the hospital for an emergency costs $1,265 on average and cancer treatment can cost $30,000 roughly. Under this law, hospitals would have to improve their technology to increase better health outcomes, lower costs and improve their methods of distribution and accessibility. The act aims to slow the growth rate of US healthcare spending, which is the highest in the world.
Those with health insurance do not have to pay these costs as their insurance covers most of them; although, they just have to pay a small fee on visit, which is called co-payment. Many US citizens will receive their health insurance as a benefit from their employer. For those who do not receive health insurance by their employer or cannot afford it, will be able to qualify for Medicaid. Medicaid is a programme created by the government to provide payment for medical services for citizens on low-income. Medicare is a federal programme that covers your health insurance if you are 65 or older, no matter what your income is. However, if you are on high-incomes, are not older than 65 and your health insurance is not provided by your employer then you have to pay yourself. Obamacare does not have a requirement, the law requires insurers to accept all applicants, regardless of their condition or sex.
The introduction of Obamacare allowed the amount of people who didn’t have health insurance to decrease. The uninsured rate among adults (18 and over) fell from 18.0% in Q3 2013 to 13.4% by Q2 2014. The rate has dropped by 5% since the programme began.
However, some disagree on whether Obamacare actually reduces the deficit. The original estimate was $143 billion savings; although others forecast that it will add $1.76 trillion to the debt. This would be a burden because Congress passed the ACA by saying that it would reduce the cost of Medicare and Medicaid – which were eating up the entire budget. Experts say that the law imposes too many costs on businesses; however, since the beginning of Obamacare, jobs in the healthcare sector rose by 9%. The new president of the US, Donald Trump, has said that he wants to repeal; although if he does, it is estimated that 22 million people would lose their medical insurance.