by D-Source

Created on: September 19, 2009   Last Updated: September 24, 2009

We live in a Democratic Economy based on Capitalism. I am absolutely capable of getting into all sorts of complexities about what this means but I choose to make my explanations as simple as I can. The most simple way I can put it is; that our economy lives or dies on spending. Consumers do the majority of the spending. The more Consumers spend (The greater the demand) the more products companies must order and have on hand (Supply) to meet that demand. You've all heard of "Supply and Demand". Greater demand leads to a shortage in supply; requiring companies who produce these products to hire more employees. The cost of more employees, the desire for higher profits and the high demand puts upward pressure on prices, which leads to greater profitability and the ability to offer raises so these employees, who are also Consumers; can afford the higher prices. When this continual circle gains momentum; the result is a vibrant economy. Especially when wages are going up faster than prices, because this can lead to Consumers having money to save and purchase property and/or investments. Property and investments can lead to wealth. The Local, State and Federal Government collects taxes and fees on these wages and income, sales, investments, property, business licenses, etc. These taxes and fees are or should be used to improve the quality of life of the Consumers.

When the economy takes a down turn, Consumers are unable to spend as much because so many of them have lost their jobs or accepted pay cuts. When Consumer Spending (The Demand) decreases; the supply (Inventories) increases. Companies can't afford to continue producing products that they aren't able to sell so they lay off employees, which completes the economic circle in the opposite direction. Momentum builds and the economy spirals into a Recession that will continue until spending increases. The problem is; how can spending increase when Consumers keep loosing their jobs? The most acceptable solution to this problem has always been for The Government to step in and spend in the Consumers' place or to cut taxes, which is just like the Government giving Consumers more money to spend. Either way, the solution is the still the same. Spending must increase in order for the economy to improve.

Currently, there is a lot of concern about the deficit. The deficit is a major concern for many reasons: The interest required to pay back borrowed money, the value of The Dollar and many would argue that it is a National

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