Tuesday, February 05, 2008

Tell Us What We Need To Hear, Not What We Want To Hear!

A news analysis piece in today's New York Times concerning the Bush administration's $3 trillion budget really touched a hot-button of mine.

If you were to ask me to sum up in a nutshell what absolutely positively bugs the living shit out of me about politics, it would have to be the complete and total denial of reality by politicians and the US electorate.

This is not, or shouldn't be, a game. We are, or should be, all grown-up now and able to face the music. Apparently not.
“Republicans and Democrats are in complete denial on these issues,” said Robert D. Reischauer, president of the Urban Institute and former director of the Congressional Budget Office. “But were they to face up to the long-run fiscal challenges, it would be a ticket to defeat. It’s not what voters want to hear.”

The presidential campaign does not exactly reverberate with proposals for dealing with these problems.

No, it most certainly doesn't. But it should. Anything that is likely to impact our wallets is an issue.

At some point, a president is going to have his or her ass up against a wall and tough choices need to be made. These are issues which we should have been hearing about during the primary campaign season. Instead, all we got were glossy generalities.
A presidential election year, of course, is rarely a time for politicians to propose outsized, unpleasant choices. But with the economy turning downward, there is even less appetite this year to wage ideological battles.

The deficit is expected to grow to at least $400 billion, or just under 3 percent of the gross domestic product, in Mr. Bush’s final year in office, and probably more than that because of the Iraq war. That level approaches previous deficit records and is considerably higher than what Mr. Bush had projected a few months ago. The largest federal budget deficit — $413 billion, or 3.6 percent of the overall economy — came in the 2004 fiscal year.

By ignoring the problems now and giving the people exactly what they want to hear is surely going to backfire with the next administration. And unless all the people with their heads in the sand can understand why we are in this situation, the painful remedies will no doubt be blamed on the party in power. And that is another step in the wrong direction for a nation already on a downward trajectory.

Many are learning the truth the hard way.
For more than half a century, Americans have proved staggeringly resourceful at finding new ways to spend money.


But now the freewheeling days of credit and risk may have run their course — at least for a while and perhaps much longer — as a period of involuntary thrift unfolds in many households. With the number of jobs shrinking, housing prices falling and debt levels swelling, the same nation that pioneered the no-money-down mortgage suddenly confronts an unfamiliar imperative: more Americans must live within their means.

“We don’t use our credit cards anymore,” said Lisa Merhaut, a professional at a telecommunications company who lives in Leesburg, Va., and whose family last year ran up credit card debt it could not handle.

Today, Ms. Merhaut, 44, manages her money the way her father did. Despite a household income reaching six figures, she uses cash for every purchase. “What we have is what we have,” Ms. Merhaut said. “We have to rely on the money that we’re bringing in.”

The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.

The situation is particular dire for those who took out home equity loans to fuel their spending.
For the 34 million households who took money out of their homes over the last four years by refinancing or borrowing against their equity — roughly one-third of the nation — the savings rate was running at a negative 13 percent in the middle of 2006, according to Moody’s Economy.com. That means they were borrowing heavily against their assets to finance their day-to-day lives.

By late last year, the savings rate for this group had improved, but just to negative 7 percent and mostly because tightened standards made loans harder to get.

“For them, that game is over,” said Mark Zandi, chief economist at Economy.com. “They have been spending well beyond their incomes, and now they are seeing the limits of credit.”


A house was no longer a mere place to live; it was a checkbook that never required a deposit. Between 2004 and 2006, Americans pulled more than $800 billion a year from their homes via sales, cash-out mortgages and home equity loans.

For everyone else, and particularly those for whom the game is not over, just give it a bit more time. If you think it's bad now, wait until we actually have to pay for the excesses of President George W. Bush.

Meanwhile, assuming most of us will be getting a $600 check for economic stimulus, you might want to consider setting it aside for the inevitable tax hike to come. Consider it as a loan from Uncle Sam to be paid back, with interest, and then some.

This great quote really sums up our collective problem:
“People have come to view credit as savings,” said Michelle Jones, a vice president at the Consumer Credit Counseling Service of Greater Atlanta.

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