Monday, August 8, 2011

Increase Economic Activity in The USA Now

With so many people in a panic as a result of the S&P downgrade of U.S. Treasuries obligations to a double-A plus, I feel I should make a few comments.

Short term the United States is worthy of a triple-A credit rating, but long term, the way Congress failed to act by not raising revenues (taxes) while only cutting spending was deplorable. When politics get so acrimonious that the long term economic viability of the country is put into question, then the credit rating agencies are right to slap the USA with a downgrade, in my opinion.

A Little Economics.

The velocity of money and its relationship to economic growth can be connected by more than just dots. If the velocity of money within the United States slows down, then economic growth will slow with it. If people hold on their money and don't spend it out of fear of the future, economic activity dries up and velocity of money, in theory, could almost go to zero. Given the high unemployment number, the number of workers out of work, the smart economic thing to do is for the central government to take this opportunity to replace and repair and build new infrastructure. This infusion of money into the economy will lead to higher levels of employment and higher levels of employment will result in a higher velocity of money. In other words, money will change hands as people will create a greater demand for goods and services. This economic activity will also result in more tax revenues at the city, state and central government levels. This is pure economics. This is not politics.

The refusal of the Republican Party to do what is in the best interest of the country at a time of difficult economic times is, in my opinion inexcusable. But, enough people have to realize this before a change in direction can occur.

There is a lot of talk about how important it is to create jobs. Jobs are created when governments at the city, state and federal levels put people to work. The additional demand for goods and services from the private sector will result in a higher velocity of money and will take this country in the direction of full employment.

It is that simple!!!

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