By Michael Harianto
Two cents about economy
Every day, we are bombarded by news of high unemployment rates and stagnant growth in the American economy. Despite the government's best efforts, things don't seem to be improving.
A recent report said that banks are sitting on more than a trillion dollars. The Federal Reserve is and has actively been pushing down the interest rate, recently pushing the interest rate on Treasury Bonds to an all-time low in a desperate attempt to bait big businesses into expanding.
The cost of capital is at an all-time low for large corporations. Although lowering the cost of capital has definitely had an impact on the economy, if the Fed continues to lower interest rates, it will face the prospect of diminishing returns. We might even already be at that point.
Maybe it's time to rethink how we're going to confront our economic issues.
Instead of targeting a few large businesses, maybe we ought to change the focus of our fiscal policy and target small businesses. If big business isn't willing to spend money on expansion (and therefore employment), then the answer might lie in stimulating small businesses.
One answer could lie in giving tax breaks for LLCs and sole proprietorships to reinvest income into their businesses asretained earnings. This would provide incentive for expansion in small businesses, stimulating many small businesses' production and demand for labor and materials. This would give overall commerce, as well as employment, a huge boost and might just be what America needs for its economy to recover.
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