The Good, the Bad and the Ugly
I generally stay away from political themes in my writing, if for no other reason than I don’t want to alienate half of my readers by taking a position which appeals to the other half. I’m going to make an exception today because I think the issues relating to the debt ceiling and the budget will have an impact on all of our lives beyond the planning and investing issues I usually address.
About twenty-five years ago, a Swedish friend told me that he admired the US because our politicians started with varying positions but always seemed able to work out compromises to keep the country moving forward. Back home, he said, all it took to get elected was to promise that the government would provide something else. His fellow citizens were well acclimated to the socialist approach of high taxes but almost everything - from health care to a college education - being provided by the government. Flash forward to 2011 and I suspect his opinion might have changed, as our politicians now seem more likely to take extreme positions to please a narrow band of the electorate, allowing them less room for compromise.
After passing a new debt ceiling on August 2nd, congress left Washington for its August recess and the president prepared for a bus trip across the country to do some business and raise some campaign funds. All 536 of them apparently believe that the debt problem has been resolved and they are free to return to their “business as usual” mode. I fear, however, that they are wrong and that it may be some time before business returns to usual. On August 4th, the market sold off broadly, giving up about 5% of its value and the New York Times reported an 82% disapproval rate for congress. On August 5th, S&P downgraded our government’s debt. Perhaps I’m not the only one who’s concerned.
According to the Department of the Treasury, the national debt has increased more than 55% in the past four years. In reflecting on changes in US politics since my friend expressed his admiration, I would say this is a bipartisan issue, with all sides wanting the government to be able to provide more but no side having a concrete plan to do so within the context of a balanced budget. Yearly government spending is about $3.6 trillion, or about $36,000 per US family and tax receipts are about $1.6 trillion, or about $16,000 per family. If you or I were faced with a discrepancy like that, I’m pretty sure we’d do whatever it took to bring things back into balance. Unfortunately, neither congress nor the president seems to consider this an urgent issue.
The title of today’s article, of course, comes from the 1966 Clint Eastwood movie. In it, he portrays a bounty hunter who conspires with (and against) most of the other characters in a very bloody story, riding away at the closing credits having abandoned his partner in crime once again. The title has entered our language as shorthand for a complicated situation like the one we face today. In that context, here’s how things appear to me.
The Good? Well, it is certainly good that we have a debt ceiling deal and that the US will continue to pay its bills. It’s also good that our treasury bonds continue to be the preferred investment for people and governments all over the world who are looking for safety.
The Bad? I don’t believe that the very remote connection our elected officials appear to have with the bulk of the population, and perhaps reality, bodes well for our future. And, of course, the specter of future wrangling and additional rating downgrades isn’t likely to be healthy for our country and its economy.
The Ugly? At best, economic news continues to be mixed. We are starting to hear questions about a double-dip recession and hundreds of thousands of us are suffering through being out of work. That said, corporate profits have been quite healthy, largely because most businesses have resisted hiring new employees. More than one Chief Financial Officer has been quoted as saying she’d never again be caught without a healthy supply of cash, yet it’s spending that cash which will put people back to work and eventually bring an end to the recession.
Does that make business the culprit? Opinions abound but I’d say it has more to do with government than business. We are one of only two countries in the developed world with a debt ceiling and a real decision about ours has not been made, simply postponed. Nina Olson, our national taxpayer advocate, reports that there have been 4,428 changes in the tax code over the past ten years including many which were made retroactively or were deliberately temporary. This sort of uncertainly makes life difficult for anyone whose job it is to make long term decisions. The recession will not end until people begin going back to work but it’s hard to imagine any rational business person making a long term investment in staff at a time when politicians can’t agree on a long term direction for the country.
I have heard politics described as “the art of the possible”, where various beliefs represent a starting point but compromise must be achieved for progress to occur. An increasingly fractious congress offers me little encouragement that our political situation will morph from ugly to pretty anytime in the near future.
