Supporting Policies Against the Economic Downturn and Slumping US GDP

That the U.S. economy has decelerated has become clearer. What is needed to boost the economy is drastic.

Preliminary figures released by the U.S. government for real gross domestic product for April through June 2012 showed an increase of a mere 1.5 percent over the previous year. It had been three quarters since there was such low growth above 1 percent.

The main factors are the deterioration of the workforce with the unemployment rate staying above 8 percent, slowed consumer spending and sluggish corporate investments.

At the end of last year, the U.S. economy looked as though it were riding toward recovery, but that energy didn’t last. The U.S. economic standstill continued, and it has been observed that it will decelerate even more in the latter half of this year.

German and French leadership have agreed to a “take all measures” plan in response to the expanding financial insecurity of Spain, but the future is unclear. The stagnant economies of Europe and the U.S. can be considered a part of the global economic volatility.

The problem is that there is a feeling of stalemate concerning American fiscal and monetary policy.

The major cuts in income taxes that former President Bush created after 2001 are set to expire at the end of this year. Also, through a compromise between parties for financial reform, mandatory administrative expenditure cuts will be put into place. The de facto tax increase through the expiration of the Bush tax cuts, as well as expenditure cuts, is called the “fiscal cliff.”

Major budget reductions that would be considered falling off the cliff would be a minus for the economy. In order to soften the shock, President Obama has proposed an extension of the tax cuts for the middle class as the best option.

However, in the lead up to the November presidential election, the opposition Republican Party has sought tax cut extensions that include the wealthy and isn’t open to compromise. A settlement is bound to be postponed until after the election.

Beyond being unable to set forth an immediate and appropriate fiscal policy, they are being confronted by rising expectations for backing an efficient monetary policy.

At the end of June, the U.S. Federal Reserve Board extended an easing of monetary policy by lowering long-term interest rates and increasing the percentage holdings of long-term bonds. However, they launched a third round of quantitative easing as the focus of the markets.

Deterioration of the job market hasn’t stopped; including quantitative easing, they shouldn’t hesitate to have a backup plan in case the European crisis expands and causes further confusion in the markets.

The Federal Reserve Board’s supplement policy could be to accelerate the appreciation of the historically super high-valued yen against the dollar or euro, which could have a serious impact on Japan’s business environment. We wish for the Japanese government and the Bank of Japan to strengthen itself, work toward the prevention of the appreciation of the yen and create a level of monetary easing policy.