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the us economy 2000

the us economy 2000 The Current State of the U.S. Economy The United States economy is racing ahead at dangerous speeds, and it may be too late to prevent widespread inflation from hitting us like a brick wall. Ideally the economy should move ahead gradually and grow at a steady manageable rate. Mae West once stated “Too much of a good thing can be wonderful” and it seems the U.S. Treasury Secretary Summers agrees. Summers announced that due to our increasing surplus and booming economy, instead of having an outsized tax cut, we should use the surplus to further pay down the national debt. A tax cut, though most Americans would favor it initially, would prove counter productive. Cutting taxes would over stimulate an already raging economy, and enhance the possibilities of an increase in the pressures of inflation. Where as paying off the national debt would actually help lower interest rates and boost investments, and therefore further increase the wealth of the population, while keeping inflation at bay. It seems Federal Reserve Chairman Alan Greenspan beat the Treasury secretary to it. Greenspan could not wait for the economy to fix itself by paying of the debt. The United States economy is roaring ahead at about 5% annual growth rate, much faster then the federal reserve considers safe. In an attempt to keep inflation under wraps and fix the imbalance of the economy, the Federal Reserve raised federal fund rates half a point, overnight, to 6.5%, the highest in nine years. However the fed is not sure this will be enough too keep inflation from rising dramatically. The fear is that this dramatic rate increase is too late, though the market reacts immediately it takes the economy between six months to a year to begin to show the effect. The federal reserve has raised interest rates five times in less then twelve months, and the pervious raises are just barely beginning to take effect. The previous raises averaged around a quarter percentage point, and since these raises failed to slow the economy, Greenspan, unable to take anymore chances doubled the previous with a promise of more to come. The interest rates are expected to reach 7.0% by June, the most severally effected by these constant raises are shareholders. Because of these immediate effects market economists are largely against the interest rate hikes. Their position is that the average inflation rate over the past three years has been at around 2% close to the markets expected inflation rate of 1.9%. The economy is on a sixteen year run, continually moving forward. The historical data is there however; the consumer price index was at 1.6% over the past twelve months and the March year over year rate was at 3.7% The market economists do not stop there due to the vast improvements in productivity, largely due to increased technology and the internet, some market economists argue that Greenspan should leave the economy as is. Ideally the growth rate of the economy should be set by the growth rate of the labor force and productivity, and if the two were similar, inflation would not be a factor. The economy has however been moving too fast for too long, if nothing is done or if the recent increase proves to be too little too late we as a nation need to prepare ourselves for the impact of a wall of inflation. Despite an unchanged core consumer price index in April, which excludes volatile food and energy prices which rose the expected 0.2%, Greenspan is facing pressure from all sides to continually increase interest rates in order to slow down the economy’s blistering pace. The stock market will feel the effects immediately and therefore oppose any further price hikes, however; a recession will destroy us. Bibliography:

Word Count: 626