The U.S. economy has fallen into a recession. It is a severe and deep recession, and one that some economic analysts say may persist for at least another year. The unemployment rate has risen to levels not seen in over 20 years. The current unemployment rate is at 8% and is expected to rise further. The inflation rate is -2.4 percent, meaning that overall, prices are falling.
You are the new senior economic advisor to the President of the United States, and he has asked for your recommendation on how to proceed. Since you are an experienced Washington consultant, you know that you should first consult several other experts and get their advice. The following colleagues have expressed their insights and recommendations.
Although we have fallen into a recession, the unemployment rate is steadily dropping. “As of March 2013, the National unemployment rate is 7.6, down from 7.9 and 7.7, January and February 2013,” respectfully (April 14, 2013). The National inflation rate has also increased to 2% as of March 2013 (Current Inflation Rate). Contrary to popular belief, inflation is not evil, and is occasionally our friend. Sometimes it is hard to label inflation as being good or bad, but looking at our overall economy, the increase in the inflation rate at this time is good. Right now the inflation rate is on target in terms of where the Federal Reserves want it to be, between “2 and 3 percent” (Inflation: What is Inflation).
With prices rising and unemployment falling, a delicate combination of both monetary and fiscal policy would be needed in order to keep our nation moving in the right direction and from dipping into a deeper recession. Although, the President does not have the authority to lower interest rates, I do agree with lowering the interest rate as Mr. Raymond Burke stated. Lowering interest rates would boost borrowing, spending, and investing. This would also be beneficial to businesses and shoppers. I would have to disagree with Ms. Kathy Lee’s recommendation to raise taxes at this point in time; however, this proposal should not be taken off the table completely. Higher taxes would certainly put pressure on many working families, especially after a decade of falling income for everyone except the rich (January 22, 2013). As we all know, increasing taxes would decrease consumer spending. When employers have to pay higher taxes, they may be inclined to lay off employees in order to make ends meet; this would lead to an increase in unemployment. Personal and business investments would also decrease due to higher taxes. I would agree with reducing government spending; however, it would not be from the U.S. home front. I would not raise bank reserved as Ms. Lopez suggested because this would only stop banks from lending. This action would hurt demand. Companies would not invest in equipment, buildings, etc., as much and consumers would not be so quick to purchase cars, houses or larger purchases requiring a loan. I agree with Ms. Tanney’s recommendation to buy bonds because this would increase the money supply. To help make ends meet, my recommendations to the President would be to simply cut off spending to everyone outside the United States. Why continue to support the reconstruction of Iraq and Afghanistan, while they continue to kill our soldiers. Spending for both wars has caused the U.S. to go into debt. As of today the cost of these wars is well into the trillion dollar mark. See link for up to the second count. “The U.S. spent $60.45B in Iraq reconstruction from fiscal 2003-2012 and nearly $100B in Afghanistan since 2001” (January 19, 2013). Many of our troops have paid the ultimate price for this war. I would continue with the President’s proposal for tax reform for the high-income taxpayers and corporations (January 22, 2013). Additionally, I would look for ways to incrementally increase taxes across the board so the burden would be