Personally, I See a Big Recession Coming

Though many seem optimistic about our economy, we may be in for a big bubble, and one that keeps on building up.

(Please bare in mind that this post is only describing a theory I have about our economy. Please don’t take this as serous financial advice! No one can truly and safely predict the economy, or the stock market.)

I have been making an interesting observation lately. From looking at the media, people’s voices, or even different economic charts, I have noticed that many people are thinking that the economy is doing great, and will continue to. I will not lie, the economy is doing fairly well and has recovered dramatically since the 2008 recession. GDP is at a healthy rate, also unemployment is very low. However, history repeats itself, and it doesn’t make sense economically in my opinion for the stock market to continue to go up much longer.

The stock market seems way overvalued, and I question why it has seen such a drastic growth over the past several years. It’s necessary for the stock market to correct itself every once in a while, but my theory is that if you wait too long for it to go down, it can have major consequences on businesses, and the economy.

Here are 3 factors that I believe are making the stock market continue to go up in the short run, but keep on postponing a market correction, and will lead to a terrible recession…

1. Federal Interest Rates Remain too Low, Possibly Overheating the Economy

Considering how low-interest rates have remained, being at only 1.5% percent now, and even lower not too long ago, I think this may be contributing to a the stock market becoming too overvalued, with possibly too much growth in lending and borrowing to businesses. It also isn’t good news if you don’t have much elbow row to decrease the Federal Interest rates to bring back economic growth, when there is a recession.

2. The Rich are Getting Richer

So why do I think that rising inequality would lead to too much short-term growth in the stock market? Well consider this… The wealthy have a large amount of their assets invested in capital markets. As they continue to have a larger share of the economy, that means more money is put away in the stock market and other investments, again leading to this short term growth in these investments.

3. Recent Tax Cuts to Big Corporations May Help Bring Their Stocks Up for the Final Stretch

Since congress recently passed big tax cuts to large corporations, this may give more short-term growth to larger businesses, thus they will hire new people, invest more, etc. This could also lead to bigger paychecks to the top, as well as more room for companies to buy their own stock, which they will likely cause the stock price to go even further up for the short run.

 

If my theory is true that different factors are preventing the stock market from having a correction when it should, and it keeps on going up and up, This will be a devastating shock to the economy when it crashes. Considering big businesses take up a large portion of our economy, and since they are able to hire people, and expand out largely due to their market capitalization growing, if the market capitalization takes a big cut for many businesses, that isn’t good.

I have a theory that the bigger the drop in the stock market during a recession, the more dramatic it is for businesses, causing many to be laid off, many businesses to stop growing, etc. If it’s a much larger then normal bubble then in most recessions, then I sure hope we are all prepared. Don’t forget many baby boomers are retiring, and so now is a bad time to have a huge market crash. Also during a recession, people tend to consume less, so that hurts businesses even further.

Yours truly, from a 17-year-old arm-chaired economist! 🙂

 

 

My Bipartisan Ideas for Our Economy…

We need to grow our U.S economy through creative, bipartisan ideas. Here are a couple of examples!

 

Its very unfortunate to see the United States so divided. The statistics show that there is a continues progression with both parties becoming more and more divided and separate from each-other. It seems to have become an ‘Us verses them” mentality. As a teenager, I want to see our country become closer together, not farther apart. Though I clearly have my viewpoints as a democrat, I do believe that we are all Americans, and that despite the different viewpoints among-st the different parties, they both have good ideas. Besides, there isn’t enough ideas being considered that includes both sides ideas.

For example, considering an idea with how we can deal with the national debt, while increasing public assistance funding, since they are both important. Again both sides have important points we should all consider, even though I don’t agree with all of them! Not everything is black and white, and we want laws to last for the long term, not just be repealed every time someone new is elected. Below I have come up with some bipartisan ideas that both republicans and democrats can hopefully consider, and maybe one day use to benefit our economy for the better, and help my generations future!

 

FIRST IDEA: Decreasing the corporate tax rate, while closing up their tax loopholes.

The US has the highest corporate tax rate among-st developed nations, but many large corporations aren’t paying enough through dedications and loopholes. Some monopolies aren’t even paying anything at all! This is a problem overall for our economy, and for both parties. Its unfair that some corporations may pay a descent amount, while others can get away with paying virtually nothing, because of shipping their money somewhere outside of the country! How would you like to be the corporation that is paying its fair share, while your revile is paying nothing? Though there should be some flexibility on the tax, such as a companies size, revenue, etc, there should be a more solid tax that all corporations pay, (especially monopolies), period! However, in order to do this, we should also decreasing the corporate tax a bit as a compromise. Just because the corporate tax rate is very high, doesn’t necessary make them pay more, in fact, increasing it even farther may just worsen things. So to simplify, end corporate tax loopholes such as shipping money to some island to avoid taxes, unnecessary deductions, etc. But at the same time, compromise by decreasing the overall cooperate tax rate, but still make all of this apply to all corporations. We can all agree the tax code needs to be simplified to some extent.

 

SECOND IDEA: Gradually increase the Federal minimum wage from $7.25 to $15 an hour, but also make tax cuts to small businesses to make up for the change.

For the Americans whom make, or make close to the Federal minimum wage of just 7.25 an hour, it is very difficult to live off of that. There are many studies that claim its not even enough to support yourself on such a small wage, especially if you are supporting kids/ a spouse. However, it is true that an increase in minimum wage could hit small businesses hard, considering that we need the businesses to stay profitable, and want to hire workers. Plus, it wouldent be fair considering the idea that some small businesses are barely making enough in money, for themselves. What I suggest we should do is increase the minimum wage 7-10 percent a year, and for a long enough time until it reaches $15 an hour. However, this should occur while we at the same time with lowering taxes for small businesses. There should be a strong coloration between the raising of the minimum wage, and the amount deducted/ lowered for small businesses. This could all be a win-win situation, getting people out of poverty to live better lives, pay more in taxes etc. While at the same time, small businesses are able to afford to do this, and maybe even have more productive and happier workers.

 

 

May I Suggest a New Tax Plan?

 What if rather than focusing on more or less taxation overall in our U.S economy, instead we have an alternative tax plan with a bit of both?….

 

As I have mentioned in one of my previous articles, there are many problems with our current United States economy. That article also mentioned how our economy may not be heading in the best direction, in the near and distant future. I mentioned all the problems, ranging from the massive inequality, to the corruption and greed going on, as well as an assortment of other problems, other than a few positives like a long-term upwards trend on standard of living. I believe that a major potential fix for our economy could potentially be an alternative tax system, unlike the majority of tax plans of many other countries throughout the world.
I think both Conservatives and Liberals alike can agree that Republicans overall want a decrease in taxation, and Democrats want an overall increase in taxation on everyone. That is a major problem. Both have pro’s and con’s, but it shouldn’t just be fully one or the other.
With a decrease in taxes, though you could potentially get more consumerism, and (with assuming a decrease on everyone’s taxes including the middle class), you could get a middle class that could potentially be able to save more, send their kids to college, etc. On the other hand, the government would have less money to spend that would benefit different groups of people such as the middle class and poor with welfare, public assistance, cheaper tuition, etc. In the United States, the percentage of the GDP being from the government is already very low compared to other countries, particularly in Europe.

Now with an overall in increase in taxes, you could in return have a bigger government that could make our society better with infrastructure and better education, and many other things. It could even involve paying off more of the national debt. Also, a higher taxation on the wealthy could really help redistribute the wealth and fix the major problem of inequality. However, the downside is this could hurt some of those with lower to middle incomes, considering many are already just breaking even, and don’t have much money to consume. Though many could potentially get this back with a variety of government programs, whats the point if its already taken from their own paychecks? Also think of the costs of transitioning the money from those people to the government and back into government services.

What if rather than having a tax plan that heavily taxes more or less on everyone in general, we have one that is rather, really progressive, but with big cuts to taxes with the middle class, and virtually no taxes for the poor (or at least very little.)

In simple terms…. this would be something like a huge decrease in taxes for those in the lower income quartile. A good decrease for the middle class in taxes, as well as more tax deductions in general. Then about the same taxes for the upper-middle incomers. Finally, a big increase for upper-incomers, and a super tax increase for the super wealthy.

So why have a taxation plan so progressive yet with so much cuts for a good amount of the population? Well the top 1 percent of our countries wealth, as well as the top 5% own a tremendous portion of the country’s wealth. Basically, as you get to a higher and higher percentile in income, you end up owning more and more of a stake in the wealth distribution. If we focus just on taxing mostly from the wealthy, you may possibly end up with more taxes than before, despite big taxes from everyone else, this is simply because the small percentage of the population that holds the majority of the wealth, holds such a large amount of money that can be taxed and more evenly distributed! The tax cuts from the middle class and poor can be beneficial on the other hand to the wealthy, because of the more consumerism that will result in them being better off. This will really help more spending in our economy and better profits for businesses, which results in more money for the wealthy in a sense. Think of rather than a ‘trickledown theory’ a ‘trickle up theory!’

Below is a rough idea of what I would believe to be a good alternative tax system, rather than just an increase or decrease in taxes overall! I call it the ‘Dwyer Ideal Tax Bracket’, named after me. (Something to keep in mind though, this is what I think each incomer should be taxed at, at the end of the day, not at what each dollar at each income bracket should be taxed at, like in the actual tax plan. However I do believe it should continue to be taxed on per dollar, rather than instantly change on each income amount.)

Capture taxThis is certainly quite different then our current tax plan and many tax plans throughout the world, especially considering how progressive it is. Though this might sound like a good plan, it is yet another problem to close up the loopholes in the first place that many of the ultra-wealthy take advantage of! If you are interested in reading more about my idea’s behind this tax system, as well as other economic insights in general from a teenager, read more from my blog, or wait for the book that I am close to finish writing to come out. It is about growing our economy! Stay put!…