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Deficit Reduction Hits Home
Since the advent of the financial crisis in 2007, the global economy has experienced one of the deepest and widest recessions in recent economic history. With regard to the United States, the public debt as of March 25, 2011 was $14.21 trillion. When compared with the United State's Gross Domestic Product (GDP), the current levels of debt would be 97 percent in comparison. After the global financial crisis, domestic policy makers in the United States have begun to focus on a reduction of the deficit. In the most recent developments targeting the deficit from the now Republican-controlled House of Representatives focuses on broad discretionary spending cuts. While the bill at the time of writing has not yet passed, the most current figures cited in the Associated Press show between $61 billion in cuts to $33 billion in the next Fiscal Year. Apart from the political dimensions of this question, the reality is that changes are swift in coming. These changes will have wide-ranging affects on the structuring of not only government programs such as Social Security, Government Pension Plans, retirement programs, but also the a diminished effect of collective bargaining from unions.
With regard to the final example of unions, one only needs to look to the example of Wisconsin Governor Scott Walker's recent battle with Teachers Unions over the cuts he had proposed to shore up the $3.7 billion deficit Wisconsin is currently experiencing. The political battle ended with Governor Scott Walker getting his way, and among other cuts that he made to the budget, he also succeeded in stripping the unions of their collective bargaining rights. This perhaps provides a microcosm of what is bound to happen on the national level. As an investor caught in current economic turbulence, it is important to know when and how to make the necessary adjustments insuring yourself from adverse financial outcomes.
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One relevant anecdote comes to mind from the book "Who Moved My Cheese?" Essentially, the book begins with two pairs of mice, Sniff and Scurry and Hem and Haw, entering a maze ardently seeking out the cheese. As luck would have it, the four mice together found a room full of cheese. The mice ate until their hearts content, and returned every day to the same location, until one day the cheese was gone. At this point the pairs of mice separate in their response to the situation. Sniff and Scurry, upon discovering the cheese was gone, reentered the maze to seek out more cheese. In contrast, Hem and Haw returned daily to the room that was once full of cheese, hoping (fruitlessly) that the cheese had triumphantly returned. After days of this same routine, Haw suggest to Hem that perhaps their best option was to reenter the maze and search for cheese. However, Haw realized that the likelihood that cheese would reappear in this location was very unlikely indeed. Failing to persuade Hem, he decided that it was best to go it alone. In doing so, he was able to sustain himself. The simple moral of the story is that it is best to adapt to your environment and make changes early, when evidence of significant change begins to emerge. Additionally, when applying the story to the current financial restructuring in the United States, it illustrates the divergence between those who will waste time complaining about the financial mess, and those taking the proactive approach to their finances and coming to the realization that the 'cheese' is not coming back anytime soon. The question only remains: what group do you want to belong to?
