One would think that the world is ending. The markets are in free fall. The media is in a feeding frenzy. Most people I talk to are convinced we are all going over the "fiscal cliff."
My advice: Take a deep breath and get a grip.
As I sit here in my office writing this column, I glance out my window and see a crowd of people. The line of less fortunate members of our community holding small children and infants snakes out of our parking lot and down the street. Many have been waiting since early this morning in 25 degree temperatures. They are here because my company is giving out 300 turkeys to help those who are financially strapped to provide a nice Thanksgiving for their families. It is a small gesture, a way to give back some of what the community has given us. And yet there are so many people here, that the local police have restricted access to the road for safety reasons.
What strikes me is that the crowd is far, far larger than it was two years ago when we last did this. Although it is a small sample and completely unscientific, I can’t help but feeling that the economy is getting worse, not better, at least in this neck of the woods.
At the same time, politicians from both parties are meeting in Washington to hammer out a compromise that would supposedly avoid that which so many of us are worried about. It strikes me as odd that Americans, both liberal and conservative, are so hell bent on cutting spending and raising taxes at a time when the economy is so weak that good, honest people have to line up for something to eat.
Sure, I know all about the deficit and the debt ceiling and the fact that we are all living beyond our means. And yes, I too worry about posterity, about my children and my grandchild and what country I may be leaving them. Yet, as I look out the window, I’m not sure this is the right time to take the cure.
In his budget message of 1932, Republican Herbert Hoover proposed a balanced budget. He begged Congress not to embark on any new spending and to ignore pleas to stimulate the economy as a mean to boost employment. He also implemented the Revenue Act of 1932, the largest tax increase in American history. Although he meant well and felt that austerity was the right medicine for what ailed the U.S. economy, he was worse than wrong. What had been a recession quickly spiraled into the Great Depression.
Over the last three years Europe’s policy makers, led by Germany, have insisted on similar austerity measures as a means to solve the debt problems of Greece, Spain, Italy, et al. As a result, the economies of these nations plunged and unemployment skyrocketed. Rather than solve their debt problems, these economic measures -- raising taxes and cutting spending -- caused deeper financial calamities and forced the European Central Bank to come to the rescue.
Europe’s problems have worsened as a result of these policies. Yet, with this on-going example of misguided policies occurring on our door step, Congress and the White House have been urged by all of us to enact similar policies here at home. I do not understand how anyone can expect that raising taxes and cutting spending in America will have a different result than what is occurring in Europe today or in our own country during the 1930s.
In the meantime, the stock market is in a "waterfall" decline. Markets could lose another percent or two before all is said and done. But this too shall pass. I believe that Congress and President Barack Obama will come to a compromise after the usual round of hysterics and last-minute drama. The markets will rally, gaining back all that they lost and six months down the road we will be faced with the next circus act. In the meantime, we will have run out of turkeys.
Bill Schmick is registered as an investment advisor representative with Berkshire Money Management. Schmick’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or e-mail him at Bill@afewdollarsmore.com