Natural Resources

6/23/13

Mercer Knott

Macroeconomics

“How to Conquer Angst and Spur the Economy”

            Earlier this afternoon at 4:03 pm ET, executive business editor of the Wall Street Journal John Bussey wrote, “the vibe is still decidedly belt and suspenders” (Bussey, 2013). This was in response to United States’ economic growth of 2%. Knowing the ideal growth rate for an economy is 2-3% no less and no more. If you were to see growth rate higher than 3% you could assume that there may be a bubble in formation. For example, in the most recent occurrence we witnessed a housing bubble break, which was one of the main causes of the recession in 2008.

“A belt and suspenders” approach to a recovery is when lenders become very cautious with their loans and they make sure that all of the rules and guidelines in their contracts are very strictly followed. In order to protect themselves from making poor lending decisions banks have been increasing their repo-rates showing little tolerance for those who fail to fulfill their end of the bargain. As we learned in class, the main source of revenue for commercial banks is the interest customers pay on loans they withdraw. So if interest rates are high then you will see a reduction in loans, but, if interest rates are reduce yet, loans are very closely monitored then you would see an increase in investment among businesses. This being said, that is not a very realistic approach and as of last week that is not the angle that CFO’s of the WSJ global CFO Network wanted the attack this growth problem by anyway.

Last week the CFO’s of this network met in Washington, D.C. During the meeting they discussed the growth rates of global economy around the world. We are projected to meet the expected growth rate of 2% each year for the next 3 years. Meanwhile, Europe will be see a flat rate of 0% and China will be experience growth of 6-7% each year. What are we doing wrong? Those CFO’s that attended the meeting in Washington discussed when “Asked about the piles of cash they’ve built up in the past five years” (Bussey, 2013), Almost half of the members said they have added onto those piles, 30% said they have not seen any change.

After thorough discussion the CFO’s suggested their final proposal. A proposal that they believe will increase GDP growth rate, “diminish risk” (Bussey, 2013), “increase investment” (Bussey, 2013). In order to fulfill all of these desires they suggest we tap into our natural gas. At first this may seem like a good idea, a spike in GDP would surely come but at what expense? I believe this would be good for our economy, it would pump money into investment, by increasing the supply for natural gas we would open our economy up to a whole entire new source of revenue. Instead of importing natural gas from neighboring and foreign countries we would be a major supplier, opening up a new market for natural gas that would domestically supply a significant number of jobs. This decision would surely increase investment resulting in economic expansion, bringing a lower unemployment rate and reduced interest rates. All of outcomes are great for our economy’s recovery and growth but is the cost of destroying our environment, polluting our planet and depleting our natural resources worth the benefits. 

Citation- 

BUSSEY, J. (n.d.). At WSJ CFO Network, How to Conquer Angst and Spur the Economy - WSJ.com. The Wall Street Journal - Breaking News, Business, Financial and Economic News, World News & Video - Wall Street Journal - Wsj.com. Retrieved June 23, 2013, from

http://online.wsj.com/article/SB10001424127887323495604578539240821896764.html?mod=WSJ_hps_sections_management