The US Economy - March 10, 2008

You have to love the political rhetoric of the promises to fix the economy. The economy, like all things in life, is a cyclical process. The ebbs and flows are similar to the change of seasons. While policies and events help shape the direction, it is businesses and the consumer that ultimately moves the needle. Humans are greedy by nature and a recession is merely a cleansing of that greed. Government and the Federal Reserve react to put more money in the economy and eventually the pendulum will swing again.

In May, Americans will receive tax rebate checks to help stimulate the economy. And it will do just that. But, this is not a fix to the current conditions. It will provide a temporary spark but it won't be sustainable unless Americans find more discretionary income in their pockets to spend. And it needs to be noted that if the government knows this is a way to stimulate the economy, why are corporations and consumers taxed to death? Higher taxes will always lead to a depressed economy (eventually) because consumers and businesses drive economic growth and nothing is more powerful than the discretionary dollar that can be spent.

To key weapons to control the US economy are taxes and interest rates. Lower one or both and the economy will prosper. Raise both and the economy will suffer. It really is that simple and complex. It is complex because inflation works in the opposite direction most of the time.

So if Americans want to influence the economy, they will need to understand what impacts it first. Take universal health care for example. Where will the money come from to pay for this? Higher taxes? If so, this means less jobs and tougher economic conditions. We all need to ask these questions before voting for "change".

Time will heal the wounds of the current economic cycle like it has done in the past. Understand what impacts the economy and why and you will make more informed and prosperous decisions in the future.