Message to the President
Wyatt Benno
Nick Hissong
Dustin Miller
Dare Heisterman
Current Economy
Numbers Provided by BLS for Aug 2010
Unemployment = 9.6
CPI = +.3
Productivity = -1.8
Average Hourly Earning = +.06
GDP =+2.7% 1Q:2010 3rd revision
Present state of the economy
Current Economy
As many of you know, we have faced our longest
recession lasting 18 months from Dec 2007
and ended June 2009.
(According to NBER)
Current Economy
• Even though the recession is declared over and the economy
is not contracting this does not mean the economy is
expanding rapidly.
• Signs of increasing consumer spending have slightly increased
showing good signs of consumer confidence.
• The main goal at hand now is to focus on preventing a double
dipping recession that happened in the 1980’s recession.
Are we in a liquidity trap scenario?
• Definition: The Liquidity trap is a Keynesian
idea. When expected returns from
investments in securities or real plant and
equipment are low, investment falls, a
recession begins, and cash holdings in banks
rise. People and businesses then continue to
hold cash because they expect spending and
investment to be low. This is a self-fulfilling
trap. Definition from about.com. Accessed on 9-20-2010
http://economics.about.com/od/termsbeginningwithl/g/liquidity_trap.htm
What this means
GDP = C + I + G + NIX
In a normal scenario we would see Change in C go into investment
expenditure due to higher savings.
However in a liquidity trap scenario Investment expenditure does
not increase due to a lack of new loans.
At the present moment government expenditure may be
supplementing the reduction of Consumption expenditure through
fiscal policy.
Personal Savings Rate
Policy should be focused on
correcting these problems
1) Consumers are saving and unwilling to
borrow.
2) Banks are not lending.
3)Or both.
Policy Suggestions
• Eliminate uncertainty by keeping regulation firm
among banking institutions.
• Keep large-scale policy initiatives during the economic
downturn that may shake confidence in markets and
spending minimal to none. (i.e. Cap and Trade)
• Encourage business lending among banks and
reduction of capital gains tax among small businesses.
• Enable consumer confidence with tax cuts for extra
income to spend and invest, rather than save due to
economic fears.
Top Marginal Corporate Tax Rate
• (The effective U.S. corporate income tax is 35
percent, far over the industrialized-nation
average of 18.2 percent.) The only country
with a higher corporate tax rate is Japan, who's
is 40%.
• http://www.cnbc.com/id/38682634/Would_C
utting_Corporate_Taxes_Jumpstart%C2%A0_U
S_Economy
What we project a lower corporate tax
rate to do?
• We foresee the corporate tax rate, being as high as it
is, causing jobs to leave America. If the tax rate was
lowered, with the current low interest rate, we expect
that foreign and native investors would be more likely
to invest here rather than abroad. Ultimately, this
would create jobs and boost consumer confidence.
With a lower unemployment rate and in turn more
money in our economy this would help banks be able
to lend more because of more deposits etc. We feel
this would help to jumpstart our economy.
THANKS
• Thank you for listening to our proposal. Please
let us know if there are any questions or
concerns.
Works Cited
http://www.bea.gov/national/nipaweb/TableView.asp
SelectedTable=1&ViewSeries=NO&Java=no&Request3Place=N&3Place=N
&FromView=YES&Freq=Qtr&FirstYear=2003&LastYear=2010&3Place=N&U
pdate=Update&JavaBox=no#Mid
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
http://nowandfutures.com/key_stats.html
http://www.commerce.gov/
http://research.stlouisfed.org/fred2/graph/?id=BUSLOANS
http://www.moneycafe.com/library/fedfundsratehistory.htm