Pennsylvania Investment Observer

An Open Letter to Congress and the Administration

by Daniel J. Nestlerode

In the weeks following the events of September eleventh, it is evident to many people that the economy is sliding into a recession despite the efforts of the Federal Reserve to lower interest rates and increase the money supply. We have now experienced one calendar quarter of declining gross domestic product (GDP) and seem to be well on our way to another quarter of shrinking GDP. According to the standards, this means that by the end of the year the country will be in a confirmed recession. This is occurring despite the massive refinancing of mortgages in the residential and commercial real estate markets, the drop in energy prices and the recent $40 billion tax rebate program.

The world changed on September eleventh for all Americans. Before this date we were focused on the potential of a recession and a falling stock market. After September eleventh, we realized that we are no longer safe and secure in fortress America, buffered by two oceans, from the strife in the rest of the world. We also realized that government cannot protect and make each of us safe from harm. We must personally take action to see that our families, neighborhoods, communities and nation are safe. One of the things we can do is increase our cash personal reserves through increased savings and debt reduction. According to some estimates, 82% of the tax rebate program went to debt reduction and increased personal savings, neither of which spurred economic growth or helped us avoid a recession.

Clearly, the Federal Reserve will continue its program of lowering interest rates and expanding the money supply. However, we understand that the Federal Reserve can increase interest rates and contract the money supply at any time if inflation becomes apparent. Americans must move quickly to refinance their debt while the current window of opportunity is open. We understand that Congress is proposing many measures, most of which are temporary in nature, to get the consumer spending again. Please note that families and businesses cannot plan around temporary measures and will likely just increase savings and pay down debt with the benefits from such temporary measures. Neither action will get the economy growing again. Economic growth requires permanent measures including reductions in the marginal income tax rates, a reduction in the capital gains tax rates and the elimination of the alternative minimum tax. Accelerating the previous tax reduction act would be a good start. Americans are looking to Congress and the Administration for a commitment to the long term growth of the American economy and are looking to a government that will trust its citizens to step up to the economic plate and commit to capital spending programs, knowing that they will be able to reap the benefits of their risk taking. Economic growth, higher tax revenues, lower unemployment and rising personal incomes and personal spending comes from the private sector investing capital, taking risks, hiring people and becoming more productive for the benefit of all Americans. Enduring economic growth does not come from government spending programs or temporary incentives. Business investment plans are made over multiple years, across congressional elections and even presidential elections. It is time that government made a commitment to its people that it is permanently committed to long-term economic growth of the private sector, regardless of who controls Congress or the White House.

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