Thursday, July 14, 2011

Observations of the "Debt Ceiling Debate".

Here are some observations from the "debt ceiling debate" that will impact all US citizens.

1)  Politicians are a step behind the market.  Financial experts across the spectrum agree that the congressional debate in Washington is showing uncertain and divided leadership.  This lack of alignment and political grandstanding unnerves creditors.  They have been threatening to downgrade our bond ratings for weeks - they did it again yesterday.  This is bad news for Americans; borrowing rates would have to go up, driving up the costs of borrowing that will have to be passed on to the consumers at some point in the transactions.  The length of the debate may cause a Pyrrhic victory for us all.

2)  The truth is worse than most of us realize.  The debt is higher, revenues are lower, and forecasts have been increasingly negative, while Democrats fight to protect social programs and Republicans fight to keep taxes as low as possible.  The solution to the long term issue will require a massive overhaul of our social spending, our defense spending, and our tax code.  Can this group of leaders get it done given the global financial gun pointed at their collective heads?  I doubt it - but our political leaders must deal with the hard truth and come up with viable, flexible long term economic principles and policies which will ensure the prosperity of future generations of Americans.

3) Given the division of thoughts, hard lines, and rhetoric, almost any deal will feel like a loss to many people on both sides.  The extreme left and extreme right will both cry foul and say their political leaders failed.  There is an old saying in business.  "A fair deal is when both sides feel like they got "screwed" a little."  Congress has to pass a deal, so if you are holding out the hope that there will not be any compromise, get ready to feel "screwed".  Given the situation, both sides need to compromise quickly to avert the global perception of weak economic policy.

4)  This is a mess we made.  You can't have it all.  You can't spend more than you make.   You can't have less taxes and high services.  We can't elect politicians to fight for positions to violate common sense, then blame them for not solving a problem we elected them to perpetuate.  We are all part of the problem; now we all need to be part of the solutions.  It is new time.  There are new financial realities in the nation and the world. We need to understand how we as a nation, states, communities, families, and individuals can thrive in this new environment.  It will be different - it doesn't have to be bad.

5)  There is a consistent idea voiced by the optimists in the debate that this recession will pass and that American ingenuity, spirit, and innovation will accelerate positive results.  In other words, Americans may be slow to grasp a problem but we are quick to solve problems.  I know this to be true.  Do your part - every little bit contributes to progress for the nation.

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