U.S. Capitol BuildingAs the debt-ceiling discussion winds down in Washington and everyone laments over the meaning and mutual downside of compromise, our attention should start to turn to a more frightening problem -- the economy is not growing.

Sure, default is off the table now. But the backdrop is negative, and all the hope in the world doesn't change the math. As Jim Cramer of CNBC says, "Hope is never a strategy."

The real problem is demand. After all, if you don't have a job, you're not buying much. And the only real way for the country to solve this problem is to grow the economy.

In the meantime, those who are weathering the storm best are those who have saved along the way. You can never go wrong with self-control. I hope that one person with that mindset lives under your roof and it's now giving you the comfort to ride out these turbulent times.






In listening around the clock to CNBC, MSNBC, CNN and others, here are -- in my mind -- the five key takeaways from the debt debate:

#1. Cash is king: At DailyFinance we often hear from people looking to earn more interest on their savings. But here's the key: you have savings. What an enviable position to be in. For every year you lived in the less-expensive apartment or neighborhood; for every month you drove the car that wasn't as luxurious as the one in the next lane; for every season you spent more time reviewing your personal finances than planning your family vacation, you've earned a better night's sleep now. The sons and daughters of Depression-era parents seem to inherently get this, but the culture of saving has been largely lost on subsequent generations, many of whom are experiencing a pretty steep learning curve now.

PewResearchCenter | The Washington Post#2. Ridiculous: According to a new Pew poll in The Washington Post, the debt-ceiling debacle has damaged political reputations. "Ridiculous" is the word that comes most frequently to mind when describing the charades in the capitol. This has given Republicans an opening. Mitt Romney was notably absent or -- in a Mittness Protection Program as some have deemed -- during the discussions, but the incredibly telegenic Margaret Hoover was everywhere. He should hire her immediately for his campaign.

#3. Leave us alone: Companies are looking for clarity. They want the space to make decisions, especially when it comes to their most significant cost -- personnel. We recently spoke with Brian Hamilton, CEO of financial-analysis firm Sageworks, about small businesses' hesitancy to hire full-time workers. The overwhelming sentiment about government intervention in the economy is "leave us alone," he says.

#4. Their house is not like our house: Here's the inverse scenario, which suggests that the government should ramp up the stimulus a la World War II. Did Obama underdo it? What should a re-do look like, especially when you consider that his house is not like our house. As Rana Foroohar of Time explains, the president may have to spend his way to growth -- following Keynesian economics -- while, for regular U.S. households, spending would be reckless. It turns out, the simplistic argument that "you have to balance your budget, they should have to balance theirs" isn't really all that relevant.

#5. It's not over till it's over:
Even after the debt deal, a downgrade is still possible. If that happens, we're in even more trouble, and so is Obama.

Increase your money and finance knowledge from home

What are Penny Stocks

The lucrative and dangerous world of penny stocks.

View Course »

Basics of Diversification

Learn one of the fundamental concepts of building a portfolio.

View Course »

Add a Comment

*0 / 3000 Character Maximum

106 Comments

Filter by:
savemycountry911

chrissy, If you're so smart, why do you support Rural Electric? It is nothing but a big scam on the taxpayer.

August 03 2011 at 9:45 PM Report abuse +2 rate up rate down Reply
1 reply to savemycountry911's comment
savemycountry911

I know because I'm on it.

August 03 2011 at 9:46 PM Report abuse +2 rate up rate down Reply
chris1011

96% of current Deficit Spending Comes from BUSH PROGRAMS:

National Debt Increased by 75% under Bush:

2001 - $5.871 trillion
2008 - $10.640 trillion

National Debt Increased 25% Under Obama

Jan 31st 2009 = $10.569-Tr­­­illion
Jan 31st 2011 = $14.131-Tr­­­illion

But of the $3.56-tril­­­lion increase, 98% was carry over from Bush programs:

Bush: $910-billi­­­on = Interest on Debt 2009/2011
Bush: $360-billi­­­on = Iraq War Spending 2009/2011
Bush: $319-billi­­­on = TARP/Bailo­­­ut Balance from 2008 (as of May 2010)
Bush: $419-billi­­­on = Bush Recession Caused Drop in taxes
Bush: $190-billi­­­on = Bush Medicare Drug Program 2009/2011
Bush: $211-billi­­­on = Bush Meicare Part-D 2009/2011
Bush: $771-billi­­­on = Bush Tax Cuts 2009/2011

Bush's contributi­­­ons:

2001 to 2008: $4.769-tri­­­llion
2009 to 2010: $3.181-tri­­­llion

Total: $7.950-tri­­­llion

Increase Since 2001 = $14.131 - $5.871 = $8.26-Tril­­­lion

Bush's contributi­­­on: $7.950-tri­­­llion / $8.26-Tril­­­lion = 96%

Obama only contributi­­­on: $580-billi­­­on = Stimulus Spending (as of Dec 2010).

Increase caused By Bush's Programs: 96%
Increase caused by Obama's Programs: 4%

August 03 2011 at 8:10 PM Report abuse -1 rate up rate down Reply
savemycountry911

Oh yes..........MRS. PELOSI FOR PRESIDENT

August 03 2011 at 7:50 PM Report abuse +2 rate up rate down Reply
savemycountry911

chriss1001, "Yada, yada, yada, blah, blah, blah". zzzzzzzzzzzzzzzzzzzzzzzzzzzzz

August 03 2011 at 7:48 PM Report abuse +2 rate up rate down Reply
chris1011

HEADING FOR A CRASH?

Pretty much across the board, economic analysts recognize the new deficit agreement will hurt economic and job growth, and therefore make a double-dip recession that much more likely.

Tanking the economy would seem to be in no one's interest, but Kuttner points out: "Despite three years of a bad real economy, Wall Street's executives are doing better than ever. So it doesn't seem to bother Wall Street that the rest of the economy's going down the toilet."

As wealthy investors and corporations operate more and more on a global scale, they become less concerned about the health of the U.S. economy and more concerned about U.S. taxes.

"I'd say the social contract has broken down, domestically, because so much of our production is now being outsourced," Johnson said.

Some supporters of deficit reduction are so adamant, Johnson said, that they may be willing to see and seize an opportunity in crisis, it even if the immediate, direct consequences will be grim. "When people's backs are against the wall, that's when you can push them to do things they wouldn't do," he said.

Those who favor massive deficit reduction may well think, "We'll never be able to do it in a time of expansion," said Robert Pollin, an economist at the University of Massachusetts at Amherst.

Davig, the investment banker, said economic growth is not the most significant issue for Wall Street.

"Everyone can live with a little bit of fiscal drag if there's a little bit more stable macro landscape," he said. "They're happy to live with a little bit of fiscal drag."

And Galbraith said he thinks some of the super-rich out there, sitting on all that cash, are actually hoping for the economy to crash and burn.

"The strategy of pursuing a deflationary strategy is a strategy that greatly benefits people with cash," said Galbraith. "If you're interested in deflating asset values, and you have cash with which to buy assets when things hit rock bottom, then you have a powerful interest in a deep depression."

"That's certainly consistent with the banks holding 1.4 trillion [dollars] of reserves, which is absolutely unprecedented," said Pollin, who backs a tax on excess reserves. "That's 10 percent of GDP."

August 03 2011 at 7:40 PM Report abuse -3 rate up rate down Reply
1 reply to chris1011's comment
savemycountry911

Can I get that in the Readers' Digest condensed version?

August 03 2011 at 7:45 PM Report abuse +2 rate up rate down Reply
2 replies to savemycountry911's comment
chris1011

no, I'm afraid things like this cannot be said in a 2 second sound bite, much as we Americans would like everything neat and clean and easy to digest. I'll tell you what, though - the global elite will eat your lunch and throw you the bones..

August 03 2011 at 8:13 PM Report abuse -2 rate up rate down
savemycountry911

I'm going to put your posts in the microwave and see if that helps.

August 03 2011 at 9:44 PM Report abuse +1 rate up rate down
savemycountry911

Employees of the small municipal airports which may close are crying about losing their jobs. Did you know that the taxpayers subsidize those airports to the tune of $2,000 TO $4,000 PER TICKET SOLD? We have to stop the outrageous pork projects NOW.

August 03 2011 at 7:39 PM Report abuse +4 rate up rate down Reply
1 reply to savemycountry911's comment
chris1011

Yes, and what about those rural roads where you get maybe one car every two hours, where you can safely drive a herd of cattle across without having to stop and look. Maybe in your world we should stop paving them too. And maybe we should stop subsidizing rural electrification while we're at it.

August 03 2011 at 8:16 PM Report abuse rate up rate down Reply
1 reply to chris1011's comment
savemycountry911

I'm on rural electric. It is a big scam on the taxpayer.

August 03 2011 at 9:44 PM Report abuse +2 rate up rate down
chris1011

HOW IT HAPPENED

Progressives say Washington's governing class absorbed its bias toward austerity -- and, implicitly an agenda favoring the wealthy -- by osmosis.

"The people who do fundraisers are the people who don't want to pay taxes," Johnson said.

Politicians "spend an awful lot of time calling people with assets," said Robert Borosage, co-director of the Campaign for America's Future, a liberal think tank. "You don't spend a lot of time with people who aren't affluent, and you certainly don't have extended discussions with them about economic policy." Over time, Borosage said, "you develop a set of self-justifying rationalizations," he said.

It helps that the Washington elite hasn't suffered from the financial downturn much, if at all, Palley noted. "There's no doubt that they live in a bubble," he said. "They're not feeling the pain that the country is feeling."

Then there are the groups that Galbraith calls the "Washington agitprop operations," which have been working for years to create and propagate a reflexive distrust of deficits.

Lead among them is former investment banker Peter G. Peterson's eponymous foundation, home of a billion-dollar campaign to force Washington to confront what it calls the nation's "gargantuan longer-term structural deficits."

"[Peterson]'s been screaming that the sky is going to fall for decades," said Borosage, adding, "if you put up a billion-dollar institution you can buy an awful lot of folks."

The foundation holds swanky fiscal summits for pillars of the Washington establishment. It oversees a media empire that has produced its own documentary, funds its own news outlet and underwrites financial coverage elsewhere.

The Democrats have their own banker-funded deficit-hawk proselytizers as well, including the Hamilton Project, founded by former Treasury secretary Robert Rubin, which hosts frequent star-studded events devoted to "long-term prosperity."

August 03 2011 at 7:39 PM Report abuse -3 rate up rate down Reply
chris1011

while the country suffers from a sputtering economy and a grinding jobs crisis, elected officials are celebrating the passage of a massive deficit-reduction bill almost guaranteed to even further slow the economy and cost jobs.

For the weeks leading up to the agreement, Democratic and Republican leaders were essentially trying to out-austere each other. It's that bipartisan enthusiasm for reducing the government's budget -- and the speed with which both parties abandoned a job-creating agenda -- that left-leaning analysts say demonstrate how beholden elected officials from both parties have become to the rich, and how out of touch they are with the problems of the poor and the middle class.

"If these people were rational policymakers, they would not focus on deficit reduction right now," said Neera Tanden, chief operating officer at the Center for American Progress. "They would focus on stimulus right now."

"What's crazy about Washington is that the only thing we talk about is deficit reduction; that nobody talks about jobs," Tanden said. "It's borderline insane."

To liberal economists like University of Texas professor James Galbraith, the explanation lies in what he calls the Washington elite's "deficit hysteria."

From this perspective, the spending cuts signed into law Tuesday were the culmination of the investment of hundreds of millions of dollars by moneyed interests into the development and inculcation of a specific Washington consensus that anyone who doesn't believe the government is dangerously overextended -- and who doesn't consider the danger of deficits as very, very serious -- is a wild-eyed radical.

August 03 2011 at 7:35 PM Report abuse -4 rate up rate down Reply
1 reply to chris1011's comment
chris1011

While Washington lauds its cuts, the traditional arguments in favor of deficit reduction probably have never been weaker than they are right now.

None of the economic signs that augur for deficit reduction are remotely visible. Quite to the contrary: A high unemployment rate, enormous unused capacity, inadequate market demand, cheap capital and record-low interest payments, incipient deflation, crumbling infrastructure and underwater homeowners all point to this being an ideal time to increase government borrowing -- to invest in infrastructure, provide debt relief to homeowners and generally increase demand and create jobs.

With American banks and other businesses sitting on trillions of dollars they refuse to lend or invest, one can hardly accuse deficit-spawned borrowing of "crowding out" private loans. And with people lining up to lend money to the U.S. government for long periods of time at near record-low rates, one can hardly argue that the deficit is driving up interest rates.

Thomas Palley, an economist at the New America Foundation, says Republicans' focus on the deficit regardless of economic conditions is logically consistent because their core interest is limiting government.

August 03 2011 at 7:36 PM Report abuse -4 rate up rate down Reply
2 replies to chris1011's comment
chris1011

And over time, Democratic leaders haven't just embraced deficit reduction as a goal, they have explicitly bought into government austerity as the primary solution.

There is, of course, another way to reduce the deficit: Stimulate economic growth and grow out of it.

"We have a huge deficit because we have a huge recession," said Larry Mishel, head of the left-leaning Economic Policy Institute.

Democrats could have, as an anti-deficit strategy, decided to put all their energy into pushing for a pro-growth agenda. But they chose not to.

Last November, when Obama decided to make a statement about the deficit, he did so by freezing pay for federal workers.

CUI BONO?

It’s not hard to see whose financial interests are served by a consistent pressure to reduce the deficit and shrink government's reach: the wealthy, and especially Wall Street -- or, as Rob Johnson, a senior fellow at the liberal Roosevelt Institute put it, "people who don't want to pay taxes in the future."

For wealthy people who own a lot of bonds and other long-term financial assets, deficit spending means a threat of higher interest rates and inflation.

From the Wall Street perspective, "inflation is a huge risk," said Troy Davig, U.S. economist at Barclays Capital, the British investment bank. That's because inflation erodes the value of bonds. "It's implicitly defaulting on the debt," he said.

Banks and major corporations have another incentive to oppose government borrowing: They would rather be the lenders themselves, so they can charge interest and assess fees.

August 03 2011 at 7:37 PM Report abuse -3 rate up rate down
chris1011

Another assumption among progressives is that the financial sector has its eye on the money flowing through the big entitlement programs.

"If you can use deficit hysteria to privatize Social Security and Medicare, there is a lot of money to be made," said Robert Kuttner, the co-editor of the American Prospect. Having Wall Street manage retirement accounts could "generate a ton of fee income and prop up the stock market."

Palley said even a reduction in benefits or coverage could be lucrative for Wall Street. "The less effective Social Security is as a savings vehicle, the hope is the more private savings will be directed toward finance," he said.

August 03 2011 at 7:38 PM Report abuse -3 rate up rate down
chris1011

I keep hearing from the right wing that higher taxes is a job killer. As a manufacturer I can assure you that we do not factor taxes into our hiring plans. In fact, when taxes are low, we have every incentive to back money out of the company for personal use. And that would include things like buying that Mercedes or pricey beachfront property in Hawaii, or socking it away in a bank - all totally unproductive things that does not create jobs.

On the other hand, when taxes are high, we plow pre-tax profits back into the company by investing in more equipment and processes, which do several things. They increase productivity, allow us to sell our products at a lower price, thus spur demand, and ultimately cause the company to grow. We can then hire more people to do the extra work. Even though taxes are higher, we have not lost anything because we still own the equipment, processes and larger company, even though we might not have as much after tax money. However, the increased growth, spurred by the desire to reduce taxable income thru increased investments, will actually put more money into our pockets in the long run.

One thing I have found about my fellow manufacturers in this area, true conservatives that they are, is that they are very pragmatic about these things. What I find interesting is that they pretty much agree that the new Tea Bagger types are completely out to lunch on these issues.

August 03 2011 at 7:00 PM Report abuse -4 rate up rate down Reply
chris1011

“The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, and more selfish than bureaucracy. It denounces as public enemies, all who question its methods or throw light upon its crimes…. corporations have been enthroned and an era of corruption in high places will follow, and the money powers of the country will endeavor to prolong it’s reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."

– Abraham Lincoln

August 03 2011 at 6:59 PM Report abuse -3 rate up rate down Reply