Neil M BCA Dissertation

Business Conditions Analysis:
Focusing on the Effect of the Real Estate
Recession on the U.S. and European Markets
Neil Michaelides
June 16, 2014
Masters Dissertation

Question 1
Learning about economic indicators is very important for understanding what is
happening currently in the economy. An economic indicator is a measurement of financial
activity. As a percentage, an indicator looks at increases and decreases in the economy from all
different markets. These statistics are very important for investors and give insight towards
future economic conditions. For this section let’s take a look at the this year’s first quarter
numbers and what I believe to be the top 10 indicators that help represent the current state of the
United States economy.
To begin, I believe that GDP, Gross Domestic Product, by far, is the most important
factor for understanding the current economic conditions of the United States. GDP is how the
market determines the value from all goods and services produced in the United States. The first
quarter of 2014 saw a decrease of 1% overall GDP. This is not a good sign because the previous
quarter saw a rise of 2.6%. Along with the decrease in GDP, a significant decline in corporate
profits (9.8%) and income (2.3%) was realized as well. The problem with these declines is the
ripple effect it creates across the entire economy. From the job market to consumer spending,
there is overall less cash to be spent in both the public and private sectors. This means that new
job creation will be lacking as corporations are not currently seeing growth. The cause of this
decline focuses primarily on earlier year winter weather conditions, which slowed down varying
aspects of the economy. For example, winter weather can slow down and ultimately shut down
transportation affecting both the product and service industries. These markets rely heavily on
commuting employees and transport of resources both domestically and internationally. This will

ultimately lower corporate profit and, like a domino effect, bring income rates with it. (Scott
Hoyt)
It is important to see a rise in GDP, because ultimately, GDP is a portrayal of many
different smaller measures and indicators. If we see a decline in GDP, you can expect that most
other sectors (that will be discussed later on) will effectively decrease as well. To see a rise in
GDP signals a rise in inventory accumulation. With a surplus of inventory, a stimulation of cash
flow results. Prices of goods will decrease allowing corporate and consumer spending to rise.
Looking at other indicators and measures, remember that a positive growth from them will
ultimately support an escalated GDP. (Scott Hoyt)
I believe that the housing market is the second most important indicator of economic
conditions. When the housing market burst in 2008, it brought the United States economy to a
halt which lead to a recession (two or more quarters of negative GDP growth). For this section, I
have chosen to use the measures of existing home sales and rental vacancy rates in comparison to
homeownership numbers to help accurately portray the standing of the housing market. First,
let’s take a look at existing home sales in the first quarter of 2014. Home sales increased 1.3%,
which might not be a lot, but what it does show is an increasing confidence of the American
people. A confidence that shows the consumer will receive what they deserve for the value of the
house. Could a stimulation in sales mean there is a positive light shined on the entire housing
market? (Eric Tannenbaum and Celia Chen)
To answer this question, let’s look at the number of rental vacancies in comparison to
home ownerships. This will help to better understand what is going on in the housing market.
There was a decline in homeownerships by 0.2% coupled with a decline in rental vacancies by

.3%. Due to higher mortgage interest rates in place compared to 10 years ago, it has been tough
for families, especially with wavering incomes, to maintain payments. This is what has sparked
the slight rise in rental properties and sales of homes in the American housing market. We can
see positives in this, because home foreclosures are declining due to the fact that people can sell
their houses in a timely manner and move into a more avoidable market. In the end though, we
want to see home ownership rise as a whole, because that is a positive reflection of how well the
American people are doing economically. Too help change this we will look at the next measure.
(Eric Tannenbaum and Celia Chen)
Now let’s talk about the employment situation in America. This is an important topic,
because it affects the way Americans spend money and seems to have a fairly direct correlation
with the housing market. The unemployment rate has been steadily decreasing due to the fact
that there has been approximately 200,000 jobs created a month since 2012. This number
plateaued during the harsh winter months, but as weather has improved, so has employment
rates. To continuously lower the unemployment rate and to reach the U.S. goal of 300,000 new
jobs a month by 2015, the government needs to continuously work to lower loan rates. This will
help the private (small to medium businesses) sector stimulate growth. With low interest rate
loans, emerging businesses are given an enhanced chance to grow and create more jobs,
effectively lowing the overall cost of debt. (Sophia Koropecky)
Another important indicator to keep in mind when talking about the current employment
situation in America is the ECI, or Employment Cost Index. This takes into consideration income
and benefits received by employees. For the past few quarters, the ECI has steadily declined
effecting how much employees are getting paid (decline ranging from 0.3% to 0.5%). The slight
decrease in the amount of what is being received by the civilian working class can attest to why

rental properties are gaining more popularity. I believe that this decline in compensation for
employees goes hand in hand with the decline in corporate profits. If businesses are realizing a
decrease in profits, there will be less money
to allocate towards commissions, benefits,
and growth. The hope is that as the summer
month’s role in and weather improves so
will corporate production and job creation,
further adding to the wealth of the
American people. The decline in corporate
profit seems to negatively affect two of America’s most important markets (job and housing) lets
next look at what can be done to reverse this decline and help revitalize corporate America.
(Andrew Davis)
I believe the most important area of concern with raising corporate profit, and my fourth
topic, is foreign trade. While looking at price indicators of imported and exported goods and
services, there is a slight increase in the price of imports and exports (0.1%). This is most likely
caused by inflation. To help decrease the price of imports and increase the price of exports the
United States government needs to keep working with the Federal Reserve to improve the value
of the dollar. This will also help stimulate an increase in inventory accumulation. America buys
most of its raw materials from overseas and an increase in the value of the dollar will, in turn,
increase the amount of raw materials which can be purchased. With more raw materials in
circulation, production rates in America will rise. Also, a big portion of American trade happens
with the Eurozone and due to their economic situation, resulting from the vast number of varying
fiscal policies, trade has declined. If the value of the dollar can improve, the exchange rate can

effectively be lowered between the euro and the dollar. As a result, trade can be revitalized
between these two super economies and corporate profit will rise. (Arijit Dutta)
Another important indicator, that will positively affect corporate profit and lead to
growth in the economy, is retail sales. Retail sales have been constantly rising as seen through an
overall increase of 4% from the first quarter 2013 to the first quarter of 2014. The retail sales
indicator is important because it shows the increasing confidence of the American consumer to
invest in domestic products. When Americans invest in domestic products, it directly increases
cash flow within the American economy. The purchasing of American products will result in
more profit for American businesses, small and large. When American businesses are realizing
steady revenue, this is when growth ensues. Coupled with a rise in growth we will see a rise in
the ECI and a decline in unemployment. Now that we understand the important indicators and
measures that will help support an increase in employee income and corporate revenue, the
question presents, how can increased cash flow in the American marketplace be sustained? (Scott
Hoyt)
A significant indicator to analyze, to understand if cash is steadily flowing through the
American market place, is Consumer
Credit. Recently, consumers have
recognized the incredibly low interest
rates available. An increased
confidence level in the American
government, due to high stock prices
and a stabilizing job market, consumers are willing to borrow money once again. As winter
passed and the first quarter of 2014 came to a close, there was a rise in outstanding consumer

credit. Recently, it has made an enormous jump to 26.8 billion dollars. This is the biggest jump
in almost 4 years. One of the reasons that caused this spike is the increasing desire for student
loans as more American students find it economically reasonable to go to college. It is important
for consumers to use credit to purchase products and services, because in the short run it adds
monetary value to the market place and in the long run builds revenue for the government or
lending firm. (Andrew Davis)
Next, to keep cash flow sustained in the marketplace, it is imperative to keep the CPI,
Consumer Price Index, change rate as low as possible. Inflation is inevitable, but proper control
is necessary in maintaining a balanced economy. At the end of the first quarter, we saw one of
the biggest spikes in almost a year (0.3%). This is due to the lack of production and output that
the United States experienced during the winter months. With inventory accumulation low and
with corporations experiencing declined revenue, the cost of goods rose and increased the
standard of living. Luckily, due to the increased confidence of the American consumer and low
term interest rates, this did not damper or effect consumer spending. To insure a stable CPI in the
near future, the government needs to keep a steady eye on farming production and pricing along
with overseas markets and exchange rates. Also, the American industrial industry must work
towards steadying production to ensure cash flows evenly through the economy. (Arijit Dutta)

With the additional monetary value added to the market place, through a rise in consumer
credit, it is imperative to balance
industrial production. At the end of the
first quarter, industrial factors were
playing catch up for the decrease in
production during the winter months. This
ran accounts low and recently we have
seen a slight decline (0.6%). However,
thanks to a decrease in utilities cost, the possible implications of the decline were not realized.
To further guide cash through the American market, and to sustain economic growth, industrial
production must maintain a steady rate of output. Spikes and dips in production rates can prove
to cause problems with inventory assessment. If output becomes excessive, there will be a
dilution of price and on the other side, if output is to low it will cause the Consumer Price Index
to fluctuate. Steadying the industrial production rate will not only help to sustain an even cash
flow, but it will play a major role in determining GDP. (Aaron Smith)
After understanding the importance of steadying industrial output, we can now look at
how the PPI, or producer product index, can greatly affect the ending price of the product. The
PPI looks from the producer’s point of view to understand how whole sale prices can create
inflation and prices to rise along the entire vertical market. Recently there has be a decline in
producer prices (0.2%), which has helped offset some of the inflationary issues caused in both
the corporate and consumers markets. Realizing lower whole sale prices gives us hope and
confidence that foreign trade rates well increase as a stimulation in cash flow will cause greater
demand from the consumer market thusly propelling production. (Arijit Dutta)

Now that we have looked through the corporate point of view (through retail sales and
the ECI), the consumers point of view (through credit rates and the CPI), and the producers point
of view (through production rates and the PPI) we can look at the productivity and costs in
association with the entire market. Overall productivity was low at 3.2%, but we saw some
positives in lower wholesale prices and an increased output percent of 0.3%. Also, the employ
income rate had slightly decreased, helping to offset some of the cost in association with
inflation from the CPI and the decrease of inventory accumulation, though inevitably we want
this statistic to improve. The effects of the poor winter weather proved to cause some challenges,
but with cash flow starting to increase and large markets stabilizing, quarter 2 is looking to be
highly productive. (Arijit Dutta)
In conclusion, it can be seen that an increased cash flow can be sustained through
spending. This is primarily accomplished in the consumer market, but has immediate and direct
impact on the production and corporate markets. As interest rates decline, cash is allowed easier
entry into the economy, thusly stimulating growth throughout. With a strengthening economy we
will see improvements in two of America’s most important sectors, the housing market and the
job market. Finally, as cash keeps entering into the economy and the proper improvements are
being made, our overall goal of improving GDP will become a reality in the coming year.

Resources for Question 1
 https://www.economy.com/dismal/pro/data/tracking_economy.asp -- General
 https://www.economy.com/dismal/pro/release.asp?r=usa_gdp – GDP (#1)
 https://www.economy.com/dismal/pro/release.asp?r=usa_resvac – Housing (#2)
 https://www.economy.com/dismal/pro/release.asp?r=usa_existhome – Housing (#2)
 https://www.economy.com/dismal/pro/release.asp?r=usa_eci – Employment (#3)
 https://www.economy.com/dismal/pro/release.asp?r=usa_employ – Employment (#3)
 https://www.economy.com/dismal/pro/release.asp?r=usa_impex – Foreign Trade (#4)
 https://www.economy.com/dismal/pro/release.asp?r=usa_trade -- Foreign Trade (#4)
 https://www.economy.com/dismal/pro/release.asp?r=usa_retail – Retail Sales (#5)
 https://www.economy.com/dismal/pro/release.asp?r=usa_credit -- Consumer Credit (#6)
 https://www.economy.com/dismal/pro/release.asp?r=usa_cpi – CPI (#7)
 https://www.economy.com/dismal/pro/release.asp?r=usa_industrial – Industrial
Production (#8)
 https://www.economy.com/dismal/pro/release.asp?r=usa_ppi – PPI (#9)
 https://www.economy.com/dismal/pro/release.asp?r=usa_productivity – Productivity and
Cost (#10)

Question 2
The Eurozone has been dealing with an economic roller coaster recently of high points
and low points. Normally when looking at an economic situation it deals with only one country
and their problems, but in this case that is not true. The Eurozone is not to be confused with the
European Union, which is made up of twenty eight countries. The Eurozone is a subset of
seventeen of these countries that have adopted the Euro and accepted a singular monetary policy.
When combining all of these micro economies into one central economy it creates high cash
flows, but also can prove to be the Achilles tendon. The Eurozone in 2009 experienced a
financial collapse sparked by the collapse of the U.S. housing market. To understand why this
occurred we first need to look at how the Eurozone was operating before the crisis and where the
flaws were occurring.
On January 1, 1999, the Eurozone adopted the Euro and a standard Monetary Policy was
created. Monetary policy deals with two aspects. First it determines the money supply or in other
words, how much money is in circulation. Secondly, it set a standard interest rate on borrowing
money from the ECB (European Central Bank system). This created a major flaw, because while
there was a centralized monetary policy, each country was still aloud to maintain their own fiscal
policies (defined as government taxing and spending). Countries that where thought of as
economic risks (Greece, Portugal, Ireland and Italy), due to their fiscal policies, now where able
to borrow money easily and had the same interest rates as powerhouses like Germany, that had
worked to create good credit. At first, this seemed like a blessing to the struggling economies,
but soon proved to be the cause of the Eurozone crisis.
Greece has always had a subpar fiscal policy, collecting little in taxes and putting little
back into their struggling economy. When they became a member of the Eurozone, they saw this

as their opportunity to make progress where it was once lacking. The Greek government
accepted loans with no formal payment plan in place. They created jobs, pension plans, and other
government funded benefits. In Ireland and Portugal they used these loans to create a sustained
housing market with low interest mortgage rates. Cheap credit lead these countries to have a
false sense of security. These countries were continuously taking out loans and when it came
time to pay back the loans, they were unable to make payment. This is primarily due to the fact
that these governments continue to tax their people very little, but yet, still try to improve on the
quality of life with money that was not really theirs to spend. (Europe at the Brink, WSJ video)
What happened as a result was a tornado effect. With pressure rising to pay back these
loans and still no capital to do it with, these countries took out new loans to help pay off the old
debt. This is referred to as Deficit Spending (in this case, primarily Greece was at fault). Deficit
spending works only as long as credit is still offered and it doesn’t solve the problem. The debt
ceiling continued to rise in the background. When the American housing market collapsed, it
caused a ripple effect across the world. Low interest loans came to a sudden stop. The housing
bubble, which was created in Ireland and Portugal, burst. Without loans, Greece was now unable
to pay for all the new jobs and benefits that were established, effectively bringing the
government and its people to an economic standstill. With no economic stability and a poor
fiscal policy the Greek government could no long pay back the rising debt created through deficit
spending. Ultimately, this was the underlying cause of the economic mess in Europe. (Europe at
the Brink, WSJ video)
The Eurozone, a Super economy with many micro economies, suffered greatly due to
unbalanced fiscal policies and a misunderstanding of accounting practices. The Eurozone, like a
machine, needs all of its parts working together efficiently to remain a productive unit. If one or

more of the parts are broken or out of place, the whole machine’s productivity will spiral
downward. This can cause a strain to the other parts of the machine until the whole machine
stops working. That is exactly what happened to the Eurozone. Due to the united monetary
policy, the mistakes made by countries like Greece and Italy, directly affected every country
within the Eurozone.
To combat this problem, the struggling and desperate economies turned to Germany for
assistance. Germany has a long standing history of hard working people that respect the
government and ask for little in return. Their economy has been the foot hold of the Eurozone
and has greatly helped combat inflation. To keep countries from defaulting on their loans, which
could collapse the Eurozone, the Germans offered a bailout plan to help these countries get back
on their feet. Along with the bailout money came a set of rules and guidelines that had to be
followed, known as austerity measures. Austerity measures consist of three main objectives: cut
government spending, borrow less, and pay back debts. Though this seemed like a good
philosophy, cultural differences played a major role in causing an adverse effect. (Mathew
Dalton)
Germany has attempted to bail out Greece twice now, but Greece is not a fan of the
austerity measures set in place by the Germans. The Greek people are very different culturally
than the Germans. They enjoy early retirement and have little repercussions from not paying
taxes. The Greek taxation methods are immensely flawed and generally nonexistent and, at the
same time, the Greek people expect to retire as early as fifty while still receiving their
government promised pensions. When the Germans helped Greece pay back some of their loans,
they demanded cuts in government spending, which inevitable lead to more Greek people losing
jobs and even less money being filtered into the government. Greece became stuck at a

standstill. They are too stubborn to change their way of life and the government is slow in
making changes to their fiscal policy. Due to Greece’s lack of discipline, they are inevitably
affecting the rest of the Eurozone. Something needs to be done to combat this problem. (Mathew
Dalton)
Now that it is understood how the Eurozone ended up in this economic mess, it is time to
understand what measures are being taken currently to stabilize the Eurozone. Recently the ECB
made an attempt to help decrease short and long term interest rates. The ECB also announced
that they have plans to lower the euro’s exchange value (a recent drop occurred from $1.40 to
$1.35) and redistribute liquidity to struggling nations in the Eurozone. Basically, what the
Central Bank is undertaking is referred to as quantitative easing (Mark Zandi). Quantitative
easing aims to increase money supply in commercial and private banks by buying assets off of
them, as well as lowering the interest rates of the assets. This rise in capital helps banks lower
interest rates for the citizens and helps stabilize credit. The true positive that comes as a result of
quantitative easing is that this method does not require the printing of new bills, ultimately
steadying inflation. Also, the ECB has been buying sovereign bonds and using them to help
support the euro. The ECB was not given a limit on how many sovereign bonds they could buy
and they were allowed to use unconventional methods to help re-stabilize the financial market of
the Eurozone. (Tu Packard)
Greece has also started to make improvements and reach goals set by bail out terms. They
have made improvements to their fiscal policy, increasing cash flow into the government. Greece
has reached the 1.5 billion euros they needed in their primary surplus. Although eighty percent of
Greece’s debt is still being held by multiple nations in the Eurozone, there is more trust rising
from the other countries in Greece as a result of the continued improvements. The ECB has

become more relaxed with how the Greeks are spending their money, allowing the government
to supply aid to recapitalize their banking system. Greece, in the near future will be a loud to pay
524 million euros to help support low income families and people relying on their pensions. Also
approved was a 320 million euro bailout to cover the deficit of the Greek social security firm.
For positives to keep happening in not just Greece, but in the entire Eurozone, we must now look
at what challenges they face in the near future. (Tu Packard)
A slight problem existing right now in the Eurozone is that domestic demand is low and does
little to help relieve the pressure from other parts of the economy. This is the one area where
Germany is slacking because a small six percent of economic revenue comes from domestic
demand. That is just too little for a power house like Germany. A lot is asked of Germany
because Germany is looked at like the “big brother” of the Eurozone. Germany has realized this
problem and has made efforts to change some things in their fiscal policy along with
implementation of a minimum wage (Mark Zandi). To help domestic demand improve, we need
to keep an eye on unemployment rates, which varies drastically across Europe. As of today, the
rate is stable and it has stopped increasing, but job creation in the near future is vital to lowering
this rate. (Tu Packard)
Something I believe will help the job
market and stimulate growth is a small
decrease in the strength of the euro. This will
open the trading market, making it more
appealing for other countries, like the United
States, to trade with the Eurozone. With the

exchange rate to the dollar still quite high, it makes it difficult for these struggling economies in
Europe to support export growth outside the Eurozone. For proper growth and stabilization, the
euro will need to drop more before it starts rising again (Tu Packard).
Finally, to sustain growth, I believe
a continued loosening of credit is vital
to reestablish trust and growth within
the Eurozone and its members. Due to
high interest rates, small and medium
sized businesses are the main area of
concern. Without reasonable interest
rates, small and medium businesses
cannot not sustain growth. This is an issue because this job market is credited for over two-thirds
of all jobs in the Eurozone. This is an amazingly high number and the cause of the high
unemployment rates. Many lenders are still afraid and feeling the effects of the latest recession.
Trust will continue to rise as time passes and as people start to see government policy changes
and improvements. (Virendra Singh)
To wrap up, let’s look to see why they Eurozone’s stability is important for the American
economy. The issues in the Eurozone became transparent following the American recession and
the housing market bust in 2008. As the American market has recovered, the Eurozone is much
slower too, due to the wide range and differences of the countries and their fiscal policies. The
slow recovery of the Eurozone now directly impacts the growth rate of the American economy.
Stock prices in the United States can be greatly affected by the Eurozone due to the amount of
coordinated business being done between these two powerhouses. Many American businesses

also rely on overseas loans to maintain a steady market place. Businesses in America are also
suffering due to Europe’s low availability of credit and this directly affects international trade.
The trade market is vital for stimulating a working economy and this must be corrected to see
improvements. To prove further how intertwined the Eurozone is with the United States, we can
look at how the Federal Reserve has come in to help support the ECB and make funds available
to help the impacted banking systems. (Mark Zandi)
As Americans, we need to be ever mindful of the other economies of the world,
especially the Eurozone, due to the pure size and role it plays in the global market. The global
market is important, because trade and oversees ventures account for much of American revenue.
Very little business is done in America from start to finish. We rely heavily on the success of
others globally and no longer can put focus in just ourselves.

 https://www.economy.com/dismal/pro/article.asp?cid=246054
 https://www.economy.com/dismal/pro/blog.asp?cid=247263
 http://online.wsj.com/news/articles/SB10001424052970204792404577226782139716096
 http://live.wsj.com/video/europe-at-the-brink--a-wsj-documentary/AF34C290-FBD3-
44A9-AFA9-10E2AB7A8BFA.html?KEYWORDS=eurozone+crisis#!AF34C290-
FBD3-44A9-AFA9-10E2AB7A8BFA
 http://live.wsj.com/video/euro-governments-bearing-more-greek-debt-costs/B642A69F-
35FD-453E-BFAD-A46762643BEF.html?KEYWORDS=eurozone+crisis#!B642A69F-
35FD-453E-BFAD-A46762643BEF
 http://live.wsj.com/video/euro-nations-consider-expelling-greece/12A3BF1F-F765-430F-
A5F8-6BA16B80B9C4.html?KEYWORDS=eurozone+history#!12A3BF1F-F765-430F-
A5F8-6BA16B80B9C4

Question 3
The effects of a recession or depression can be sever to any economy no matter how
strong it was prior to the decrease in GDP. The United States recently went through a recession,
which is defined as two or more consecutive quarters of negative growth in GDP. The effects of
the 2008 recession on the United States greatly impacted the housing, loan, and job markets. To
keep the US from going into a depression (which is a recession lasting 2 years or overall GDP
drop of 10%) many measures were taken to combat the problem. For this section, let’s take a
look at, what I believe to be, the 5 most important factors for a successful recovery following a
recession similar to what happen to the United States in 2008.
First, I believe that managing the housing market and regulating the mortgage rates can
be one of the most vital and important factors for a successful recovery. There has been constant
redistribution of mortgages between investors, and since these real estate agents were able to
continuously sell their assets at stated prices, they saw profit where there was in fact none. This
created a false sense of security in the value of the housing market and these consequentially
inflated prices. Inflation increased until the housing market bubble burst, which was a main
source of the 2008 Recession. The actions that need to be taken would include, proper education
of real estate agents because there was a true lack before the recession. Training these investors
on the basics and reality of the housing market is of the utmost importance. The reality of the
market is that gains are never easily attained. Agents should be taught proper pricing
methodology of how to match price with value. Also, full disclosure of price and transaction
history within the housing markets has not been up to par and this will cure some of the ailments
in mispricing. These are just a few of my thoughts on how to maintain a steady cash flow in the
real estate market.

Secondly, steady job creation and growth must be obtained. The job market is constantly
fluctuating, but in order to maintain a positive 5 year recovery, the job market must be held to a
constant. There are two major types of job markets in the United States, the private (small
business) sector and the public sector. I believe that giving support to the private sector would
best help increase chances of recovery. A decrease in taxation on privately owned businesses
will result in steady job creation. These firms cannot raise capital as easily as publically traded
firms and they are giving jobs to the working class citizens. On the reverse, increasing taxes on
publically traded firms would help generate more revenue for the government. The government
can then use this cash to help stimulate job creation through their fiscal policies.
Healthcare reform has had a negative impact on private companies. Large healthcare
expenses seriously deteriorate the liquidity of these firms and a change to this practice needs to
happen. The regulation states that any employer with over 50 employees must pay for the
healthcare expenses of their employees. I believe that by raising this number it will allow small
business to redirect their capital increasing economic growth. Encouraging small businesses to
downsize is also counterproductive to job growth.
Controlling inflation, standardizing a system and keeping the rate as steady as possible
will lead to a successful recovery. The inflation rate is a key factor during a recovery period. If
the price of goods rise and companies cannot afford to adjust employees’ salaries accordingly, a
stand still on spending will occur. One way to combat this would be proper financing control and
proper valuation of assets and liabilities. Overestimation and exaggeration of the books is
causing a misrepresentation of assets and liabilities. If a full understanding is not achieved, these
faulty books can result in inflation. I believe it is positive that the United States government is
attempting quantitative easing and tapering. This results in the government’s ability to purchase

assets for debt and reduce printing of new bills. Lastly, I believe proper use of accounting
practices and auditing of large firms can keep inflation in check. For example, in the oil industry
the use of the LIFO Inventory Accounting Method generates large holding gains for these
companies. This allows owners to control prices unfairly, whether it be intentional or not.
Next, proper management of capital debt is necessary to keep the economy moving in the
right direction. One of the biggest issues surrounding this topic is Deficit Spending or
refinancing debt with more debt. As a recovering economy, it is necessary to be cautious about
the way we spend money. The United States needs to avoid, at all cos,t taking out more loans to
help refinance and rebuild. This causes our debt ceiling to rise. Capital debt negatively impacts
interest rates which needs to be monitored in a recovering economy. There should be a checks
and balances system in place that will assist in controlling the American fiscal policies. Cutbacks
in government spending and redirection of money will help to induce a more secure system.
In conclusion, my final point is to ask the question, “Are people spending?” To keep an
economy running efficiently, money needs to be constantly moving in and out of circulation. In
times of recession, people tend to become afraid of spending money due to the fear of an
economic collapse. Loan interest rates sky rocket and the economy becomes docile. To steady
spending we need to raise the confidence level of the American people in their government. If
people see the government positively improving their situation, then they become more confident
in the system in general. The previous 4 points all play a role in making this happen. When
confidence is there, people are willing to take more chances and spend more money. To maintain
a positive recovery, the government and its people must work together.

 For this section, I mainly used personal opinions to develop my thoughts
 From research done for questions 1 and 2, I gained the understanding and knowledge
I needed to answer the question at hand.
 I pulled important information from emails sent out by Professor Christiansen to help
stimulate thought and notes from class helped to better my explanations.
 I referred back to articles listed in “Resources for Question 1” as well for additional
information.

Neil M BCA Dissertation

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