Money & You – December 2012

Where Do We Go From Here?

By Tommy Haws

The votes have all been counted.  The elections are over and now the campaigning must stop and governing begin.  There are huge issues facing the country and it is now that the rest of us are waiting.  For the most part, things are exactly as they were before the election: There was a lot of money spent to end up right were we are, one party in control of the White House and the Senate, the other controlling the House of Representatives.  A sure recipe for stalemate.  But that is what we voted for, apparently.

Fiscal Cliff
Much has been said in the national media regarding the so-called “fiscal cliff.”  It is called that for several reasons, but primarily because it is a deadline, set by Congress and the President in 2011, to get a budget compromise in place.  If this does not happen by the end of 2012, there will be automatic spending cuts, tax increases and other dramatic changes that would come into play automatically.

There is a great deal of angst over this because the cuts and tax changes in place could potentially affect each of us.  At the heart of the impasse is the fact that the Senate has not passed or proposed a budget in four years.  The House’s budget is rejected by the Senate and would be rejected by the President through veto and the White House will not propose a budget that either house could pass.  The gridlock is exacerbated by the fact that the current deficits that the government runs now will cause the government to reach its debt capacity very soon – meaning the shortfalls in revenues compared to spending must be financed through this issuance of bonds, but there is a limit to the amount of debt the government is allowed to issue by law.  Unless Congress increases the debt ceiling, they cannot issue further debt instruments and that might cause the government to be unable to fund some of its programs or pay its obligations to third parties – effectively defaulting.

Entitlement Spending and Tax Increases
At the heart of the problem to resolve these issues is the fact that there is very little desire to compromise with either party.  The Republicans want to cut entitlement spending and the Democrats want to raise taxes, especially on the highest wage earners.  Neither of them wants to offend the core base of their parties so they are not wanting to have a voting record that will reflect something that will come to haunt them in future primary elections.

Entitlement spending has continued to increase for the last few years as more and more are chronically unemployed and in need of assistance.  Those against tax increases argue that there are already enough taxes and that those in the highest brackets pay a large portion of all taxes already and to increase them would cause them to not hire or invest in the economy.  Pending nationalized health care is also a big unknown that has caused some skittishness in the markets, too.

Some Good Signs
Albeit more anemic than is wanted, it is a fact that our economy is in a growth mode.  There are new jobs being added to the economy each month.  Some argue that it is not fast enough, but there is an upward trend instead of a downward one.  The stock market, although sluggish in November, is up.  It is good to see gas prices falling instead of rising again.  Holiday shopping seems to be robust so far this year.  In all, there are some good fundamentals to hold on to.  Our economy is enormous and the rest of the world actually benefits from a strong USA.  So, let’s hope these good things continue.

As for Money and YOU – well, all of the things that I have written about in the past apply.  Make and keep a budget, live within your means and work to reduce your debt, make yourself marketable and useful to be able to get the jobs you want, and it will all work out.

I hope that our national leaders can work out common sense compromises, strategies and government policies that avoid the direction of our national debt and deficits.  This will work together for our good if we move forward.  The skills needed to run for office and those needed to govern are not always the same skills.  I hope our elected officials can look past politics and use sound economic principles to govern our great nation.

Where do we go from here?  The eternal optimist in me wants to answer, onward and upward.

As always, I wish you all a very Merry Christmas and Happy New Year.

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