Moving Forward While Nothing Changes…
The “Super Committee” exhibited less than super ability to arrive at a compromise on finding $1.2 trillion to $1.5 trillion to trim from the budget over the next 10 years. And our weary country can no longer anticipate any real change in the near future. Perhaps, it is time we adjust to our malfunctioning legislative and economic system and do our best to move forward within it.
Unless there is a genuine softening of positions in Congress over the next year, automatic “sequestering” will go into effect. What that means is that there will be automatic budget cuts across the board with few exemptions hitting all departments and agencies, including parts of Defense. Under sequestration, an amount of money equal to the difference between the cap set in the Budget Resolution and the amount actually appropriated is “sequestered” by the Treasury and not handed over to the agencies to which it was originally appropriated by Congress. Congress has chosen to exempt certain very large programs from the sequestration process (for example, Social Security and certain parts of the Defense budget) and the number of exempted programs has tended to increase over time, which means that sequestration would have to take back gigantic shares of the budgets of the remaining programs in order to achieve the total cutbacks required, virtually crippling the activities of the unexempted programs.
The prospect of sequestration has thus come to seem so catastrophic that Congress, so far, has been unwilling actually to let it happen. Instead, Congress has repeatedly chosen simply to raise the Budget Resolution spending caps upward toward the end of the legislative session in order to match the actual totals already appropriated.
The President is stating that there will be no compromise on the sequester rules, which call for 50% cuts from defense and 50% from domestic programs and Medicare.
Defense supporters are positioning to modify the sequester. But, since many Republicans continue to hold fast to not raising taxes, it is unlikely that alternatives can be passed with the 60 Senate votes that would be required. The sequester may force compromise between defense spending and tax increases, which could push a different solution forward. But considering that that has been the case since the inception of the “Super Committee” process with no result, there seems to be little reason to hope for any quick fix.
The American people are more disappointed, actually disgusted, with their government than at almost any time in history. The severe economic problems we have been facing since 2008 are still not being addressed and those we have employed to solve them have demonstrated no capacity for doing so.
So how does the middle class, upper middle class, small business owner, or even the wealthy person plan in this environment? These are our clients. The underemployed and the poor don’t have the privilege of planning; they do their best to survive. Our clients should be planning for their future, their families’ futures, and for their businesses. How do they do this in an uncertain environment with no path to certainty in sight?
In past periods of uncertainty, our clients tended to wait and see. They delayed decisions until the law was clarified or changed or until elections changed the political front. They delayed decisions until the market or the economy recovered. One could argue that “wait and see” never worked as a strategy, but today, the argument is different. Today, there is no reason to think that laws will be clarified, that the next election will make the legislative process work again, or that the economy will have a predictable path any time in the near future.
Today, clients who care about their businesses, their families, and their own economic future have to make decisions assuming that things won’t change, at least for the better, any time soon. This is the message we are being given on every front – in our own country and internationally. What we see is what we have.
As their advisors, this actually makes our job easier. We can stop speculating about what the taxes might be next year or when the stock market will stabilize. We can help clients make decisions based on how things are today with enough flexibility to modify if something of substance does change. Based on what we see today, mature clients are appropriately worried about the future for their children and grandchildren. We can help with that. Working clients are concerned with what will be required and what will be available for their retirement. We can help with that also. Small businesses are concerned about remaining viable and profitable and there are ways we can help with that.
The biggest contribution we have to make in these unusual times is to support people in making plans – to help people move forward and take action. While it might seem negative to assume that the less-than-satisfactory status quo won’t change, it is actually very important to help people function positively in any environment.
That’s what we can bring to the current environment – the ability to help people make decisions that will positively impact their own futures. Perhaps, our representatives will eventually figure out how to make decisions that will positively impact everyone’s future, but it seems that isn’t going to happen soon. We are fortunate to be in a career that can make a difference even if it is only for one family or one business at a time.
