The Us Economy

The US Economy

Today as of April 14, 2006 the current status of the US market is at inflation. The ever changing Business Cycle is constantly rising and declining and affecting everyone in this society and societies all around the world. Many people anticipate the daily news to hear how it is about to cause fluctuations in the prices of their necessities.

In this economy when the nation is going through the different stages of the business cycle the government implies different policies to push the economy at the point and stage it needs to be at. When the economy is going through recession, the government uses the Expansionary Fiscal Policy. Using this policy, the government may increase its spending. Or, alternatively the government could cut personal income taxes allowing citizens more disposable income, which will then lead to more consumption and spending moving the market.

An example of when the government used this policy would be after Sept 11 when the nations economy had fallen in recession six months prior to the attacks. It was afterwards however out of fear the government started pouring money in the market and lowering taxes and interest rates. There was over 100 Billion dollars loss in production the losses were major. The government was in fear their economy was going to collapse. Recession had begun March, layoffs were mounting, and business spending had plunged. Many Americans assumed that the terrorist attacks could only mean more dire economic consequences.

In some regards, they were right. Retail sales plunged. The air travel system was paralyzed. The stock market closed until the following week -- only to drop sharply when it reopened.

Reeling from the catastrophe, many Americans assumed that something so awful and traumatic would deepen and intensify the downturn. That didn't happen. It was the opposite.

After the September 11 attacks our markets moved up. That was until Enron and its Accounting firm Arthur Anderson began to collapse in 2001 only to reveal some truths that were unknown. Enron Corporation is an energy company based in Houston, Texas. Prior to its bankruptcy in late 2001, Enron employed around 21,000 people and was one of the world's leading electricity, natural gas, and communications companies, with claimed revenues of $101 billion in 2000. Fortune magazine named Enron "America's Most Innovative Company" for six consecutive years. It became most famous at the end of 2001 when it was revealed that it was sustained mostly by institutionalized, systematic, and well-planned accounting fraud. Its European operations filed for bankruptcy on November 30, 2001, and it sought Chapter 11 protection in the U.S. two days later, on December 2.

Enron Corp. imploded in 2001 partially because it was saddled with overvalued international assets that crippled its liquidity, a problem known to then-Chief Executive Jeff Skilling but not to most outside investors. Currently Jeff Skilling is under trial and prosecutors are still searching for the truth.

However, The Accounting firm Andersen is guilty of obstructing justice. It provided a moment of vindication for investors who lost more than $60 billion in the spectacular collapse of Enron, whose books had been audited by Andersen. One of the things that are being held against Skillling during this trial, that support he had knowledge of what was happening in his company is the fact that he was attempting to sell his stock prior to the collapse. Skilling, who characterized the stock sales' timing as a coincidence, acknowledged that a break-even sale of the assets collapsed in the summer of 2000, just before the sales. By August 2001, when Skilling unexpectedly quit, Skilling said the company would have had to eat a massive loss if forced to sell the assets then the stock market was tumbling to its lowest level since Sept. 21, much of the decline tied to the lack of investor confidence in corporate America .The inability to sell the assets meant Enron had billions of dollars tied up in them.

The trial of Arthur Andersen on charges of obstruction of justice related to Enron also helped to expose its accounting fraud at WorldCom. The subsequent bankruptcy of that telecommunications firm quickly set off a wave of other accounting scandals. This wave engulfed many companies, exposing high-level corruption, accounting errors, and insider trading. Though at the time of its collapse, Enron was the largest bankruptcy in history, since then it has been eclipsed by the collapse of WorldCom.

The public was discouraged to buy or invest. After all, who could they trust. The worlds top companies were lying. Shares values were dropping incredibly within days and weeks. Surely, making people believe the stock market was unstable. WorldCom, whose shares once traded above $64, tumbled to 21 cents in its final days.

However, the Enron , WorldCom scandals have contributed a few good things. They have opened up investors eyes. "The Enron scandal has conveyed to the American investor that he can't have confidence in the traditional gatekeepers that protect America's markets," says Arthur Levitt, SEC chair from 1993-2000. "He can't have confidence in the auditor that presented him with the statements. He can't have confidence in the standard setter that created standards which were so fuzzy that Enron was able to hide the obligations of the parent in subsidiaries. You can't have confidence in investment bankers, in the lawyers for the company. You can't have confidence in the rating agencies that should have given him a clear picture of what Enron's obligations were."

Unless major reforms are undertaken to restore that confidence, observers say, it could spell trouble for the U.S. markets.

"Without reform, there's no question we'll see more damage inflicted--we will see more Enrons," Turner asserts. "We have seen a litany of cases, a big increase in cases in the last five or six years. That's not going to change. It's the result of fundamental flaws and shortcomings in the system. Any businessman knows that if you don't fix your systems when you have systemic problems, eventually the customer--the investing public in this case--won't buy. And when that happens, the money won't go into the markets."

The Government was in need of an act to make protect the public and to stop this wide spread epidemic. The solution was the creation of the Sarbanes-Oxley Act, signed into law on July 30, 2002. It is considered the most significant change to federal securities laws since FDR's