U.S. Common Sense

I’m sure every news channel you’ve turned to today has discussed the projected “record deficit” in 2009. There is no kidding that a $482 Billion deficit is big news, but we do need to remember that these are projections. The past few years have shown that the projections tend to be much larger than the actual figures when the books are consolidated, however, that doesn’t mean we need to look at this carefully.

What is driving the deficit projections? For starters, the cooling economy. A slow or contracting economy tends to result in lower tax revenues. If people fear the possibility of losing their job, they will spend less. Companies facing customers who spend less are less likely to hire new employees, provide raises, or increase production. All this leads to less money coming into the government. Secondly, the low value of the dollar leads to inflation in prices, especially with gas costing around $4/gallon. This directly impacts everyone, both individuals and companies. Third, and the most important, is Social Security obligations.

Projected Social Security obligations for 2009 is $227 Billion. This is how much the government owes the program which, once again, Congress has failed to deal with. It doesn’t matter if it is a Republican or Democratic Congress. Neither party wants to deal with the issue since they fear a voter blowback in the next election year.

Well, I’m sorry to disappoint you Congress, but IT IS YOUR JOB! You are hired to serve the interest of the nation, not your party. The Republicans did a decent job of at least looking like they were trying to solve the problem, but neither has really stepped up to the plate and do what they were hired to do. And, if Congress is lacking a practical solution to this issue, feel free to read my proposal for 18 months ago. It might not win you votes next year … but then again, it just might. People are looking for Congress to act, not sit in DC and talk to reporters.

Ok, enough preaching. So what else can Congress do for next year? For starters, they need to cool the spending on new projects and focus on important issues. The first thing to focus on is the Housing and Financial markets. Congress has finally addressed what I proposed in regards to housing by passing legislation to help people facing unfavorable mortgages (primarily, the interest-only and ARM mortgages) to help people retain their homes and pay their bills. This will help stabilize housing prices and related industries (construction, realtors, etc).

The second area, being Financials, is a little harder to handle. The economy is not only a financial field but also an emotional one. If investors and bank customers fear that they might lose their money, they are less likely to hand it over to someone else. You hear people complain about the government is bailing out the big banks but not the little guys. There is a reason for this. If an individual goes bankrupt, it only impacts one or two families. If a big bank fails, it impacts all the customers of the bank. This isn’t just the individual investors, but also businesses and foreign investors. This creates a large ripple that impacts so many others industries that it could create a domino effect that sinks the nation resulting in a depression.

So what should you do if/when the government fails to act? Be smart with your money and live within your means. That means, just because you can afford a new $40,000 car, it doesn’t mean you need to buy it. The $23,000 used car of the same model year is just as good, and it saves you from having to spend $17,000 (plus interest). The same goes with homes, electronics, and anything else.

See, you have to live within your financial constraints, so it boggles the mind why the government cannot do the same. So why don’t you lead by example and make Congress take notice. If your elected officials cannot be financially responsible, replace them with someone who will. After a few elections, the politicians will take notice, and maybe … just maybe, you won’t have to worry about “the next” record deficit projection.

Related articles:
Financial Times - “Record deficit of $482bn forecast for 2009″