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I remain very concerned about the U.S. economy. Are we headed for a "double-dip" recession, or is the recovery going to
gather steam? While no one can predict with certainty what is going to happen to the economy, it is useful
to look at where we
Second, the economy has now expanded for three consecutive quarters, and it appears we will have growth in excess of 4 percent in the third quarter. This growth should begin showing up in increased earnings for firms, which in turn, will result in higher stock prices. Of the 176 firms in the S&P 500 that have reported quarterly earnings, 61 percent have exceeded Wall Street expectations. Since half of all American families directly own stocks and many others indirectly own stocks in the form of pension assets, this rise in stock prices will increase Americans' real wealth. This should bolster consumer confidence, encouraging business investment in plants and equipment. Other countries are trying to produce better products at lower prices to take away our business, but we are witnessing productivity growth here at home that is unparalleled in recent history. America's computer and network technology have made it possible to produce goods and services with much less time and resources than it did only a decade ago. This trend is likely to continue. According to a new Federal Reserve study, there is a 42 percent gap between the technology now in use on factory floors and "best practice technology." This means that businesses have many ways to continue to improve their productivity. This is not to say that Congress can't improve things. The current tax on U.S. business is about 40 percent (35 percent federal, 5 percent state). That compares to 30 percent in other industrialized countries. There is growing doubt in the business community that there will be business tax cuts in part because of the political criticism against cuts, i.e., "tax cuts for the rich". This hurts business expansion since businesses don't know what the tax consequences will be of investing in long-range productive capacity. A strong economy is a critical part of national security. A strong economy exists when people have good education, good research, and appropriate incentives to produce goods and services, hiring people in the process. Taxes that are in line with foreign competitors, reasonable government regulations, the rule of law, and stable monetary policy provide those incentives. High taxes, excessive or uncertain government regulation, and swings in monetary policy lead to a weaker economy and rising unemployment. Also, the American economy operates on the assumption that people are generally honest. Investors assume that audits are above-board and earnings statements are correct. They understand that companies will try to put their best foot forward, but they also expect them to be above fraud. So the recent revelations that large companies such as Enron, WorldCom, and Global Crossing and their accountants blatantly lied and misrepresented their finances has sent a shockwave through the markets. This has raised that suspicion that the investor confidence of past years may have been misplaced. If these companies lied, perhaps others have too. However, I think that fraud and massive deception will be found to be limited to a small number of failing enterprises whose executives turned to drastic and desperate measures. These dishonest accountants and executives should be prosecuted to the fullest extent of the law, and the guilty ones put in jail. Unfortunately, their crimes have helped drive stock prices down to five year lows, harming many investors and retirees.
It's important to make sure Congress does what's right for our U.S. economy. We have passed several important proposals including the bankruptcy
reform bill that will tighten up and end some of the abuses that allow people to improperly avoid paying
their debts. This will reduce costs for sellers and lenders and lead to lower prices and consumer The worsening federal budget situation will affect the adoption of any economic recovery plan. Projections from the Congressional Budget Office show a deficit of $157 billion for the last fiscal year, with only a slight improvement expected for fiscal year 2003. Thus, holding the line on spending will be critical, not only to keep our finances in order but to maintain confidence in the economy and avoid higher interest rates caused by excessive government borrowing. Despite these problems, I retain confidence in the American economy and American workers. We have the strongest economy in the world. We'll work hard to give the economy a boost and I'm predicting a strong recovery by next spring. More Information: For more on my thoughts and comments on the economy, please see my:
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are, how we got there, and where we're likely to be headed.
First, a recession occurs when Gross Domestic Product, the measure of goods and services produced in the
economy, declines for two consecutive quarters. In 2001 there was negative growth in the first three
quarters. The recession of the early 1980s was a double-dip recession, with the first starting in January
and ending in July 1980, and the second beginning in July 1981 and ending in November 1982. The
questions is, could a similar thing happen today?
It seems unlikely. That recession, like the most recent one, was pressured by high real interest rates. The
Federal Reserve, after reducing the federal funds rate from 17 percent in March 1980 to 9 percent in July,
caused the double-dip by raising rates back up to 19 percent by January 1981. Today, the real interest
rate (after accounting for inflation) is near zero. Further, there is no indication that the Fed will reverse
course and start hiking rates enough to lead to a recession.
interest
rates. The bill will include two amendments I added. The first will make chapter 12 of the bankruptcy code
permanent. This chapter makes it easier for family farmers to reorganize and try to stay on the farm. The
other amendment, prompted by my conversations with local officials in Eaton County, will prevent the
discharge of parents' child support debts owed to local governments.
In addition to the bankruptcy bill, Congress continues to consider a variety of tax changes. These include increasing the
current $3,000 annual limit on investment losses that can be deducted from federal income taxes;
speeding up planned increases in the amount that workers can contribute to their IRAs and 401(k) plans;
reducing the double taxation of corporate dividends, which are now taxed both as corporate profits and as
personal income when they are distributed to investors; and lowering the rate at which profits on the sale
of stock are taxed. Other ideas being talked about in Congress include giving retirees more time before
they have to begin to withdraw from 401(k) plans (to help seniors rebuild balances in hard hit accounts),
and extending unemployment insurance benefits.
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