Debt Ceiling Chicken

By Richard Wagner | Garden of Knowledge

Jul 07

Well, here we are in early July with no budget deal in sight.  The Dems want to keep the “social safety net” in place and raise taxes, especially on “the Rich.”  The Republicans want to put all of “the social safety net” on the table and keep taxes no worse than they currently are, especially for “the Rich,” whoever they are.  They are both playing chicken with the country’s abilities to borrow. –Not to mention its long-term fiscal stability.  What are financial planners to do?

First, let’s recognize that, from our perspective, this is not a “liberal” v. “conservative” issue.  A pox on both their houses,.  Neither party shares our primary financial planning concerns –namely the long-term financial health of our clients and individuals who could be our clients.  Honestly, it does not seem to me that such thoughts even appear to enter their conversations.  Second, let’s take this chance to consider a finological perspective on these events.  Finally, we should talk defense.  What do we do if they both play chicken and nobody blinks?

To the extent they think about fiscal health at all, these big time politicians are generally beholden to macroeconomics.  They look at the big numbers, the trends.  These are, after all, more closely aligned with the polls.  Truth be told, they just plain aren’t thinking about either Joe or Jane.  They are thinking Red or Blue.  They may speak compassionately about “social safety nets” without really asking the hard questions about long-term sustainability of our money or the economic system. Moreover, it does not seem like either side actually has a long-term plan or even engaged in rudimentary scenario planning.  Frankly, it seems these conversations would be better suited to a rousing game of “Truth or Dare.”  Or Kindergarten,

So maybe financial planners should share our skills for looking down the years at different futures rather than indulge pathologies grounded in ideological conflicts generated nearly 350 (Adam Smith) and 150  (Karl Marx) years ago respectively.  Think things might have been a bit different then?  So why are we continuing with arguments of dubious provenance?

Finologically speaking, folks need some stability.  It is just wrong to be mucking about with the dollar at a time when world systems are shaky.  It is not just Greece and the so-called PIGS.  It is China and Japan as well.  Financial planners need the dollar to be reliable and somewhat predictable.  What else works?

Finally, I do not know what to do if neither side blinks.  That is why “chicken” is a stupid game.  If one side capitulates, testosterone points go to those willing to sacrifice the interests of others while those who pull up at the last minute lose face.  “Chicken” ain’t pretty.

We could rail against hedge fund managers.  It seems extraordinary that Republicans are willing to be known for defending bogus capital gain taxation schemes rather than start dealing with the future.  We could rail against bail-outs and wasteful welfare programs.  It seems extraordinary that legislators are willing to be known for weird subsidies and Rube Goldberg bureaucracies.  However, at the end of the day, we probably just need to shout, “Hey, there are innocent people down here.  Stop doing stupid stuff.”

Traditionally, financial planners have not commented on national economic or political issues, either as individuals or through our organizations.  This debt ceiling business is scary, though.   It provides sufficient reason for us to push our perspectives into the national conversation.  Otherwise, if “chicken” prevails, the damage to all of our finely honed plans could be incalculable.

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