Are you ready for the next collapse?

| May 07, 2012

Do you remember the debt ceiling deal that Democrats and Republicans agreed to last summer? It is an example of can kicking at its finest.

Instead of solving difficult problems then, they crafted an agreement that postponed the hard work until after this year’s elections. But in November the chickens will come home to roost. There will be very little time between the November elections and January 1, 2013, for the then lame-duck congress to work together to solve any problems.

Working together has not been one of congresses’s strong points in recent years. And the way the primaries are going, it is clear that the nation will have an even more polarized Washington in 2013.

Will our cowardly leaders figure out a way to kick the can even further down the road after November? Maybe. That will be their first instinct. But the real question is will there be enough road left to kick the can down?

When sequester was agreed to last summer, a smaller version of kicking the can was built in. Do you remember the Super Committee? That was the group of legislators from both major parties appointed to make the hard choices and produce recommended changes to be adopted. Creating that committee when sequester was agreed to got congress off the hook that day. It shifted the focus onto the committee and into the future where the hard choices would presumably be made.

But true to form, that body failed. Senior legislators produced nothing, choosing instead to kick the can further down the road, beyond the November elections, to let congress deal with sequester then.

That leaves us with January 1, 2013, the date when Taxmagedon-fiscal cliff-sequester will go into effect. With an incredible lack of foresight, congress has committed multiple can-kicking acts with several big programs such that the day of reckoning for each one falls on January 1, 2013. On that date, there won’t be one can to kick but many.

Given the lack of statesmanship and leadership that exists in congress today, it is unlikely that our elected officials will rise to successfully avert this predictable and preventable crisis. How do I know that? I know because they are not dealing with it now, while time remains to do so.

The U.S. House recently passed a bill that attempts to undo sequester to protect defense spending. That bill is DOA at the Senate because the money to pay for defense comes from domestic spending programs that the Democrats favor. Neither party is showing a willingness to work with the other to solve the problem. Both are sticking to and fighting for their one-sided views. That’s the way it is now and the very same people will be the players between November and January.

Between now and January 1, 2013, look for some big market whipsaws as people worry, get reassured, and worry again. Look for that activity to have a chilling effect on U.S. economic growth. And look for a European meltdown to tip the U.S. into another recession.

Will it be as bad as all that? Will these bad things really develop? I don’t know. But I do know that sound money management at the individual level is vital. The truckers and trucking companies that survived the 2008 market panic and the Great Recession that followed were the ones who managed their money well before.

The principles remain the same. Eliminate or minimize your debt, live within your means and save money for a rainy day. There are fancier names for it like debt to equity ratio, current assets, etc.; but that’s it in a nutshell: eliminate or minimize your debt, live within your means and save money for a rainy day.

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