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The U.S. Economy
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9/11

BS 200
December 8, 2008

The United States economy is declining.  It is almost certain we are headed for a deep recession.  That most likely does not come as a shock to anyone who lives in the United States.  Jobs are becoming more scarce, prices are going up, the dollar is becoming worth less.

            According to the Bureau of Labor Statistics, the unemployment rate has increase from five and one half percent in June of 2008 to six and one half percent in October of 2008 (U.S. Dept. of Labor 1).  Businesses are downsizing, businesses are closing.  Because of this, there are less job opportunities.  More people are finding themselves out of work.

            Many businesses have been downsizing or closing.  Neither one is what the employees want.  However, sometimes, in order to keep a business from closing, they need to downsize.  Employers do not want to downsize or close either but they need to do the best they can to keep the business running.  If it is they are going to go bankrupt, it does not make a lot of sense to keep the business running.  This is especially true if closing the business will prevent them from going bankrupt.

            Well known places have been and will be closing.  Studio 28 in Grand Rapids closed.  In Ann Arbor there will be a Steve & Barry’s closing at the end of the month (Murray 1).  The economy is just not the best for businesses right now.  A decline in the economy means there will be a decrease in the well-being of many businesses.  This has been made apparent lately, with all the closing businesses.

            With so many businesses closing, a lot of people may be hesitant to buy gift cards for the holidays.  The National Retail Federation has estimated a six percent decrease in credit card sales this year (“You’d…” 1).  When the business closes, the gift card is not longer good.

            In order to keep a business from closing, employers may downsize.  This is one way to cut costs drastically.  Sometimes this is not enough, but it is tried nonetheless.  In order that closing their business does not become a necessary option, many businesses lately have been downsizing.

            Probably the most close-to-home “downsizing” has occurred in schools.  Especially in Michigan’s schools, there have been state funding cuts.  This means many schools cannot afford to employ the amount of teachers they have been.  Schools have been needing to stop hiring and sometimes even begin layoffs.

            Grand Rapid Public Schools have apparently been dealing with similar situations.  “Bracing for possible state funding cuts early next year, Superintendent Bernard Taylor announced a hiring freeze and a possible ‘downsizing’ of high schools” (Loechler 1).

This, I believe, is the worst part of a bad economy.  Businesses downsizing and closing are bad, and I think that almost everyone would agree there.  However, when we are faced with the “’downsizing’ of high schools” (Loechler 1) or needing to layoff teachers, I believe this is even worse.

            At the beginning of November of 2008, American Express announced that it has plans to cut seven thousand jobs, “or about 10% of its worldwide work force, in an effort to slash costs by $1.8 billion in 2009” (Lepro 1).

            This seems to hit somewhat indirectly close-to-home.  Although it is not the laying off of teachers, it is still a very real occurrence.  The layoffs of American Express employees may not directly affect any of us.  However, the state of the credit card company may affect us, even if in an indirect way.

            Credit card companies have been hurting due to the state of the economy.  Credit card companies have a high potential gain.  However, when consumers are spending less and having a difficult time paying their bills, there is not a high present gain for credit card companies.  Although they may have a high gain in the far future, they actually lose money in the near future.

            This may result in higher interest rates for credit cards and other types of loans.  It may also result in more difficulty in obtaining a loan.  This would affect many.  Especially in times when money is tight, paying for college, buying a car, buying a house, or the like, can be difficult.  These are all important things that most people need loans for.

            To accommodate for the losses due to loans banks may decrease their interest rates for such things as savings accounts and certificates of deposit.  Some of these interest rates are not very high to begin with, but it is still worth something.

            The stages in the cycle of the economy are prosperity, recession, depression, and recovery.  It is believed that future depressions may be able to be prevented.  The government’s actions to prevent another depression have been quite effective.  However, Dimon says that this “may not stop us from having a deep recession” (Read 1).  Dimon, as well as others, believe there will be a very deep recession.  “We don’t know how deep.  We think the economy could be worse than the capital markets crisis,” says Dimon.

            It has been questioned whether or not we are headed for another depression.  Some say we are, and some say we are not.  Some think we are a long way away from another depression, while others think we are headed straight into it within the near future.

According to Waggoner, the state the economy is in right now is not even considered an official recession (Waggoner 1).  He believes there is not a very big possibility for us to enter into another depression; he said, “There are some big differences today that make a repeat of the Great Depression unlikely” (Waggoner 2).

Many believe we will be able to prevent another depression from occurring.  There are plans in place now to prevent another one from occurring.  “The Federal Reserve has been very aggressive in its role as lender of last resort,” says Paul Kasriel, although it has not been in the past (Waggoner 2).  This is one such way of preventing another depression.  When we use the Federal Reserve merely as a last resort, it will be there when it is, in fact, our last resort.

The unemployment rate increased one percent in just four months (U.S. Dept. of Labor 1).  The economy is not good and many people are suffering from it, however, action is being taken.  A recession is part of the economic cycle, but things are being done in order to prevent another depression.  To try to stop a recession would be to try to eliminate a necessary part of the cycle.  Whether another depression will occur or not is up for debate, but at least something is being done to attempt to prevent one.

REFERENCES

Lepro, Sara. “American Express will cut 7,000 jobs.” USA Today 30 Oct 2008 1. 02 Nov 2008 <http://www.usatoday.com/money/industries/banking/2008-10-30-american-express-cuts_N.htm>.

Loechler, Beth. “GR Schools Stop Hiring, Fear Layoffs.” The Grand Rapids Press 25 Nov 2008 1-2. 05 Dec 2008 <http://www.mlive.com/grandrapids/stories/index.ssf?/base/news-44/1227622531231060.xml&coll=6>.

Murray, Stefanie. “New Tenant Already Lined Up for Soon-to-Go Steve & Barry’s.” The Ann Arbor News 02 Dec 2008 1. 05 Dec 2008 <http://www.mlive.com/annarbor/stories/index.ssf?/base/business-6/1228232437144610.xml&coll=2>.

Read, Madlen. “JPMorgan CEO: Recession could be worse than market crisis.” USA Today 12 Nov 2008 1. 30 Nov 2008 <http://www.usatoday.com/money/industries/banking/2008-11-12-jpmorgan-dimon-recession_n.htm>.

U.S. Department of Labor, “Bureau of Labor Statistics.” Economy at a Glance 21 Nov 2008 1-2. 05 Dec 2008 <http://www.bls.gov/eag/eag.us.htm>.

Waggoner, John. “Is today’s economic crisis another Great Depression?.” USA Today 04 Nov 2008 1-2. 8 Nov 2008 <http://www.usatoday.com/money/economy/2008-11-03-economy-depression-recession_N.htm?POE=click-refer>.

“You’d Better Watch out Gift Cards can be Lumps of Coal.” USA Today 17 Nov 2008 1-2. 05 Dec 2008 <http://www.usatoday.com/money/industries/retail/2008-11-17-gift-cards-cash_n.htm>.