A guest blog from Mitten

James family

(Sponsor's Name Here)'s Official Son, Mitten, currently is a junior at Rufus King HS, an International Baccalaureate (a fancy way of saying "damn good") school in Milwaukee.  He noticed that I had a two-week writers block, and offered to fill my shoes (though 16 years old, he is already three shoe sizes bigger than mine, so my shoes are actually tough for him to fill).

Disclaimer - I love my son to death, but I don't necessarily agree with him.  Every time I think I've got him reeled into the right side, the school system keeps pulling him back.  I just hope Stretch Armstrong doesn't develop a leak.

And now.... Mitten:

Big 3 Seek $34 Billion Aid

The Big 3 Automakers, GM, Ford, and Chrysler are all being hit by this economic downturn, and now they are turning to the U.S. government for $34 billion in aid. If they do not get this aid that they are seeking, they are in danger of having to file for bankruptcy by the beginning of 2009. Because of the current recession, consumers are not buying as many cars, and people will lose their jobs due to cyclical and structural unemployment. This is hurting the business cycle, and it is causing the U.S. economy, and for that matter, the world economy, to suffer.

The business cycle consists of 4 stages: Expansion, peak, recession, and trough. An expansion shows what happens when GDP increases, and at the end of an expansion is a peak. After the peak, the business cycle falls into a recession, which is ended by a trough, and starts and expansion. This cycle repeats over and over. Currently, the business cycle is in a recession, and GDP is falling. This is making it harder for consumers and businesses alike to get by, and it is why the Big 3 is asking for government help. Below is a graph of the business cycle, and where we currently are.

Our economy is currently in a recession. Recession occurs when GDP is declining. The latest reports state that GDP has fallen by three tenths of a percent. While that may not look like much, it still shows that we are headed for hard economic times, and those big companies, such as the Big 3, are being hit. If we lose a big car company, along with it will come thousands of jobs and billions of dollars, causing GDP to fall, and our economy to get worse and worse, thus causing the recession to get worse.

Another concept evident is consumption. Consumption includes all household purchases of new products, and it accounts for approximately 70% of a nations total output (GDP). Because of our current economic crisis, households have less many to consume. We are forced to save our money because we are making less of it. Therefore, households are buying more used cars and less new cars. It was reported that in November, new car sales dropped 37% to 746,789 cars. That is a huge drop in consumption, and it caused major peril for the Big 3.

Another issue that will occur is having to face thousands of job losses due to cyclical and structural unemployment. Cyclical unemployment occurs when changes in the business cycle change the demand for workers. Because of this recession, and the fact that the Big 3 automakers are in jeopardy of losing their companies, thousands of jobs are at risk. This not only means that thousands of people will be out of work and may have trouble supporting themselves and their families, but unemployment will rise, causing GDP to fall into a further recession, and we would be at risk for deflation. Structural unemployment occurs when there are gaps between worker skills and employer needs. If the Big 3 do get bailed out, people will want cars that don't consume a lot of gas. Therefore, workers who only know how to make gasoline-powered vehicles won't know how to make the alternative cars, and they will be out of work. Due to the failure of the Big 3, there would be more cyclical and structural unemployment and the economy would be in bad shape.

While it does have its downside, I believe bailing out the Big 3 is a good idea. If the government does not bail out these huge companies, our recession will only get worse. We will lose billions of dollars, thousands of jobs, and the confidence in our economy will hit rock bottom. With low confidence, we will be motivated to save more money, and consume less of it. This will mean less money will go into the economy, and like I said before, it will just make this recession worse. If the U.S. wants to save the economy, it should bail out the Big 3 automakers, so that our economy can begin to recover.

The winners of bailing out the Big 3 will be the economy as a whole and everyone who works for the Big 3. The economy will begin to recover as jobs will not be lost, and more money is being put into the economy. The loser in bailing out the big three is the already ballooning Government deficit. If we give up another $34 billion, our deficit will grow, only making matters worse.

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