Week6

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The current macroeconomic situation in the US is worrisome to many. The unemployment rate is at 8.2% as of June 2012, whereas the average from 1948 forward is about 5.7%. However, the inflationary rate is approximately 2.3%, which is 1.5% lower than the past average rate of 3.38%. Despite this information, it feels like the dollar buys less and less each passing day. According to Trading Economics, “The Gross Domestic Product (GDP) in the United States expanded 2 percent in the third quarter of 2011 over the previous quarter. Historically, from 1947 until 2011 the United States' average quarterly GDP Growth was 3.28 percent reaching an historical high of 17.20 percent in March of 1950 and a record low of -10.40 percent in March of 1958.” (Trading Economics, 2012) The government should utilize an expansionary fiscal policy, using money to increase the liquidity in the system. Despite that, they should take care not to over-do it, as too much money out there will make the dollar worth less. The current downward trend for interest rates should help to expand the economy; however, loans are hard to come by and lowering the interest rate has little impact if businesses that need capital can’t obtain loans. The FOMC (Federal Open Market Committee), the 12 member committee that makes decision for the US Federal Reserve, is trying to stimulate the economy through printing money and purchasing treasuries. Despite this, the debt is growing; the US will have to figure out what to do about the debt ceiling. Sooner or later, something is going to have to give. Although the FOMC is utilizing “easy money” tools, little is happening to ease unemployment and get credit flowing again. Tax breaks for big businesses and the wealthy that give incentives to create jobs and stimulate small business growth could help get the US engine moving again. However, this would come at the cost of upsetting the middle class, which is catastrophic during an election year.
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