Four concerned American citizens are standing around the water cooler–
First person: “Why do I have the impression that our global economy just went from bad to worse? Our credit rating went from AAA to AA+, the Euro is nearly on the brink with the possibility of being un-save-able, and now I hear the Federal reserve is extending its near zero rate through 2013? But won’t that cause inflation and devalue the dollar? Do you think there’s anything good coming out of this mess?”
Second person: “There has been so much money pumped into the system between the stimulus programs and other government interventions that the rules of the free market do not stand true in this situation. Without all of the “quantitative easing” the FED has been doing the DOW would still be at 7000 points not 12000. All of the money printing has created a barrier between interest rates and inflation, basically manipulating all logic on how the markets function. After all, the FED knows its the real estate crash that triggered the recession to begin with, and until people start buying houses at the temptingly low interest rates the economy will continue to struggle. The silver lining to all of this is unfortunately investors and foreign governments all over the world own trillions of dollars in shares of our debts and burdens (U.S Treasury Securities), and despite the credit down grade these securities are still considered one of the most risk-free investments to exist. A second downgrade may break the artificial barrier if investors lose all faith in the U.S. The downgrade is a sign that the U.S has to get things together politically and take on entitlement reforms, which consists of 60% of the federal budget.”
First person: “Excellent summary! So our next concern is with whether or not the majority of politicians in Washington have the audacity to drastically reduce our spending; but that, as we have seen demonstrated, will be no small task. What do you think about increasing the revenue with mild tax increases across the board? Or would that pose too much strain on an already sluggish economy?”
Second person: “I believe that any revenue increases in the short run will place enormous strain on the fragile economy. Small businesses need every tax break and financial incentive to start taking risks again and expand. The government has to find some creative way to lure businesses back into the states so that our economy is not fully reliant upon consumption, and lowering corporate tax rates is the only way of achieving that. Eventually mild revenue increases in the long run would ensure that a balanced budget could be maintained, but we have a long ways to go before that time arrives. When FDR instituted retirement programs it was assumed that only 10% of the population would live to see retirement, now we have 75% of the population living to see retirement…when you have 60% of the federal budget hinging on statistics like that its quite alarming. What do you feel needs to happen for progress to be made?”
First Person: “20% of the budget goes to social security alone, but in most cases these are elderly people who have earned their retirement. I’m of the opinion that the economy would suffer worse by reducing the flow of capital through social security. Defense spending should gradually be cut to ease the deficit, which is currently at 20% of the budget. I don’t know what I would suggest for the 21% that is spent on Medicaid and Medicare, the remaining 39% is shared by discretionary spending, mandates, and interest payments. I think any aggressive spending cuts (the Ryan budget for example) would have a negative impact on our economy and prolong the recession because this would reduce the amount of government spending as a percentage of GDP.”
Third Person: “If the problem is a stagnant consumer market, then we would have to stimulate private consumers to spend more, but how? One possible solution is for congress to award incentives for corporations that increase wages by x%, and penalize corporations for outsourcing more than x% of their workforce. This could be assisted by decreasing corporate taxes.”
“Fourth Person: “I doubt we can successfully reduce our deficit and stabilize market fears with out increasing taxes for the wealthier members of society.”
Second Person: “I just don’t know if the free market can handle any revenue increases for the next few years. Every time anybody in the Obama administration even mentions revenue increases the stock market drops 200 points. I would never even consider messing with seniors currently collecting or soon to be collecting social security, however the retirement age needs to be raised at least 10 years for our generation as well as tort reform. Its not just seniors collecting social security, and all of the loop holes need to be closed.”
Fourth Person: “I like your idea of penalizing outsourcing that is actually very logical and easy to enact. I think another good idea is to give tax incentives for small business start ups as well as payroll tax breaks for adding additional employees.”
First Person: “I’ve been reconsidering my original “impression of going from bad to worse”, is it possible that it’s not as bad as perceived? I mean, the news has a tendency to reflect negative over positive qualities. Furthermore, if it’s true that a recession is a reoccurring property of the free market, then the cycle is unavoidable, so it would seem prudent to me to anticipate “ups and down” and be prepared to manage through an economic downturn and try to profit in the upswing. Now with regards to the deficit and budget, yes, I agree with you, action must be taken to curb spending and also encourage economic growth.”
Third Person: “I don’t know if we can trust our government to do the right thing for our country, all their focus is on politics.”
Fourth Person: “I’ve never been more uncertain about the future.”