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Top 10 Economic Worries

I m a worrier. I know worrying alone doesn t solve anything but it does create a se nse of urgency to find solutions. Right now I m really worried about our economy. I wish the people with accountability for our economy would worry more and fin d innovative solutions so I could worry less. So, with the hope of stimulating discussion and urgency, here are my top ten economic worries: 1) U.S. Debt: By 2008 we were very upset that the U.S. government had increased the deficit fr om $6 trillion to $9 trillion over the previous decade. And rightly so: that 50 % growth rate was higher than the growth of the GDP. But since 2008 U.S. debt h as grown to $15 trillion, or +67% in just a few years. What are we doing? What happens when every dollar in the federal budget must go to pay the interest on the debt? How many downgrades are we likely or willing to suffer? We can raise taxes but every dollar that comes out of the private sector misses the positive economic multiplier impact and diminishes GDP growth. We need GDP growth in ta ndem with debt reduction to create a balance. Net, regardless of what we do wit h taxes, we must cut government spending. 2) Healthcare Costs: The greatest increase in government spending is entitlem ent spending, mostly Medicare and Medicaid. Our national goal has been to reduce healthcare costs, not increase healthcare spending. Unfortunately we ve only acc omplished the latter, not the former. Medicare now accounts for 15% of the tota l federal budget and 21% of total national health care spending. We must focus on reducing healthcare costs. 3) Dollar Valuation: Some people want the dollar to decline because they beli eve it will lower the price of U.S. exports relative to foreign goods and make o ur products more competitive. The dollar value today is worth about what it was at the start of the financial crisis. During the crisis, the Fed has flooded t he market with liquidity. Dollar value is relative and other currencies like th e euro have been battered so the dollar impact doesn t look as bad as it is. But when the economy begins to recover, higher money supply will cause inflation, an d the Fed will be forced to raise interest rates. This in turn will lower the pu rchasing power of the American consumer and we all will be poorer. 4) Euro Zone Debt: The level of debt created by Euro Zone countries is stagg ering relative to their GDP. Hence, European leaders have been in almost consta nt summits for months trying to find a solution. Already, most of the countries credit ratings have been downgraded making debt more expensive and exacerbating the issues. Some forecast a double dip recession there. Like the U.S., these c ountries must cut spending and incent growth. European issues weigh heavily on the U.S. given that a high percentage of our exports go there. 5) Energy: The U.S. is dependent on foreign sources of oil, an unsecure posi tion. Other countries control prices and have proven they can significantly imp act our economy by pulling the price strings. Energy that is dependent on organ ic materials like coal and oil cause CO2 emissions and, we fear, global climate change. Nuclear has no emissions except when a reactor fails and that, we fear. Control of nuclear waste also is an issue. France safely relies on nuclear for about 80% of their electricity. Why isn t this a model for us? Wind and solar ar e great, but the experts say that these alternate sources can only produce a small percen tage of our energy needs and there is environmental impact from these large inst allations as well. Clearly, economic growth is dependent on more energy but we seem to be in an energy stalemate. There is no perfect solution. We need a new

energy policy that addresses nuclear, natural gas production, hydraulic fractur ing, the Keystone XL pipeline, etc. to lower the costs, reduce dependence on for eign sources, cut the trade deficit, increase domestic jobs, and spark economic growth. 6) Housing Crisis: Almost 11 million homes are underwater, 3.5 million more homeowners are behind in their payments, and another 1.5 million homes are in th e foreclosure process. Home values are projected to continue to move downward a ccording to Robert Shiller. Houses are usually the largest assets on an individ ual s balance sheet and their value has a huge impact on net worth. With values d own and people underwater, borrowing capability is down and consumer spending is impacted. Rental prices also continue to increase as supply is down and former homeowners seek to rent. OK, there are a lot of people to blame for all this b ut solutions are required. We need to increase the speed of the foreclosure and refinance processes, move the short sales through, incent large inventory purch ases by investors, etc. to get housing and therefore a huge component of the eco nomy back on even footing. 7) Unemployment: This is a jobless recovery. Yes, the unemployment rate has dropped some in the last couple years. But the rate is actually a survey of pe ople looking for work and the lower rate is due to fewer people in the job marke t rather than more people employed. Actually, nearly six million fewer people a re employed today than just four years ago. We need to create about 200,000 job s per month for nearly three straight years to get the employment level up to th e 2007 level. 8) Military Cuts: The U.S. spends more on its military than the next fourtee n countries combined. We have become the world s police. While it is unfortunate that we seem to be the only defender of liberty and human rights in the world, what will happen if nobody plays this role? For sure we need to cut the waste o ut of military budgets and find the right level of spending. But let s not forget our role in defending freedom, democracy, and human rights around the world. L et s not reduce our capabilities to a level where we become irrelevant to supporti ng those goals. 9) Americans Not Paying Taxes: A reported 47% of Americans pay nothing in fe deral income taxes. While we debate what the top 1% should pay, should we also not debate why it is fair that nearly half the country rides for free? We are a caring, generous society, but it seems only fair that everyone should contribut e something, no matter how small. People do not value things they get for free. Everyone needs to have a stake in this. 10) College Tuition Costs: College tuition is increasing about 8% per year. At this rate, college costs doubles every nine years or so. Other fees like books , room, board, etc. also are rising in cost well beyond inflation. At this rate we will price a college education beyond the reach of most normal A mericans. Attainment of a college degree correlates with income, wealth creatio n, and therefore economic growth. Some suggestions are: add supply to our unive rsity systems to make them more cost competitive; add supply to funding through private student loans; encourage philanthropy that supports scholarships; and su pport technological advances in education that lowers cost. This is not a complete list of issues of course. Obviously I don t have all the s olutions for the issues, and these solutions may not be the best ones or even th e most palatable. But we need to get more people worried, focus more attention and concern here, and begin to address these issues. Our economic health and o ur future are dependent on fixing them.

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