Debt Ceiling Debacle’s Bright Side: Standing Up For What You Believe In

So you’re giving back gains in the stock market and having a difficult time finding a job thanks to the threat of higher taxes and a government default.  Meanwhile, you’re losing purchasing power as the US dollar goes to zero, while your savings returns a pitiful 0.3%.  You might have a better chance riding a hungry grizzly bear naked and escaping unharmed than accumulating great wealth and enjoying a worry-free retirement if this keeps up.

Yet, I’m as optimistic as can be because I see the human spirit shine.  Republicans in Congress are fighting for what their supporters elected them to do, provide checks and balances, reduce spending and limit the size of government.  Democrats, on the other hand, are fighting for those who depend on Medicare and Social Security to survive and are refusing to cut entitlements and therefore costs without the wealthy contributing more in taxes.

Both parties care little if the stock markets implode and unemployment stays woefully weak in the short-term, because they care for what they believe in for the long-term.  Besides, as you know from a previous post, Congressmen and women are extremely well off.  They can afford the hit.  They are willing to fight tooth and nail until the very last minute before agreeing to terms.  You must admit, that standing up for what you believe in is one of the most admirable straights a human being can possess.  Whether one is right or wrong is another matter.  Too few people battle to the very end.  Instead, we are so easily convinced and just roll over.  That’s not very courageous.
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It’s obvious that an agreement will be reached before August 2, 2011 to prevent a US default.  I know this because the 10 year US treasury yield remains at 3%.  Remember, if there is one figure you should always pay attention to, it’s the US long bond yield.  It will tell you everything from inflation expectations, to growth prospects, to foreign risk appetite, to whether that stud or babe will ask you out.  In this case, the US long bond is telling us the US will not default and everything will be alright, otherwise yields would be spiking right now.

So don’t worry everybody!  Sit back, pop some corn, and enjoy the show.  You’re fully diversified and know that in the final hour, each party will make an announcement and claim victory to save our economy.  It’s all one big mirage.  At the very least, the two parties are fighting for what they believe in and that’s better than a swift kick in the teeth.

Readers, do you admire our politicians for fighting to the very end, despite putting all of us in a financially compromised position?  Does this debt ceiling debacle affect you?

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    I guess I can admire the fighting spirit, just definitely not the policies that got some of them there, or the people that elected them. The systematic targeting by both parties to target “vulnerable” members in each other’s caucus’ (re: moderates) and redraw district lines in order to turn more and more seats into “safe zones” is having a terrible effect on politics. Combine this with the 24-hour news cycle and how are politicians ever going to compromise on anything?

  2. says

    I admire that they are standing up for what they believe in, but I don’t admire a lot of what they believe in. I support keeping our promises to the elderly with medicare, obviously, but the majority of our spending is for military and no one is considering a heavy reduction on that front.

    • says

      No. Completely disagree and would encourage you to research this. Military personnel staffing has grown 4% since 9/11. Civilian defense workforce? 30%. Yes, the DoD could stand to trim some fat.

      But, in FY 2010, Medicare/Medicaid and social security consumed 43% of the federal budget. DoD consumed 20%. To say defense needs to be cut (which I agree with) while saying entitlements need to stay as is is foolish at best. And reckless at worst.

      Everyone chides the military for doing it’s job. Fighting wars is what it does best.

      • says

        Jerret – Here’s how our taxes our spent:

        http://www.warresisters.org/pages/piechart.htm

        The numbers you claim are what the government reports, but it’s distorted. Read the link above.

        And just because “fighting wars is what it does best” does not mean it’s always the right thing to do. I’m not chiding the military, as you say, I’m saying that we shouldn’t fight wars we can’t afford. Defense is one thing, overseas wars are another.

  3. Darwin's Money says

    markets are back up today; I’m not too concerned about near-term stock market gyrations as people only tend to focus on the down days, but last week, we had an up 2% day. Next week will be interesting to be sure; I haven’t touched my holdings; if anything, I might buy some out of the money options on both ends for fun going into the Aug 2 deadline…

  4. says

    I think the “standing up” at this point has degraded to pigheadedness and obfuscation. We need to solve this problem ASAP, but very little of the talk or effort is actually going towards solving the problem. Leaving Social Security, Medicare and defense spending out means we will never find a good long-term solution and will be at it again soon enough. representing what you believe in is not a Congressman’s job, representing their constituents is. And I think that at this point most constituents are more open to compromise than congress reflects.

  5. says

    I don’t think the politicians are standing up for what they believe in at all. Call me cynical, but any sensible person without a hidden agenda like worrying about their supporters know that the only way we are going to reduce our debt is to raise taxes and cut spending. Remember that on top of balancing the budget, we still have to REDUCE our debt, as merely spending less than we earn at this point is still a disaster with $14 trillion of debt even if it doesn’t grow.

    I have a hard time believing that the politicians don’t understand this and if that’s really the case, we need to clean house because while congress may be idiots, they are certainly not dummies.

    I think the US already did a lot of damage to the economy and the world perception of us with this debacle but on the other hand, I don’t think the 3 big rating agencies will dare to downgrade our rating as long as we don’t default. After all, they are mainly US companies employing US citizens who are going to be affected on a personal level if the rating changes, not to mention that they will be hated for the rest of their lives if they do so :)

  6. says

    Interesting take on the situation. I agree that it will most likely be resolved, and I like popcorn. Will it affect me? Probably not much. I calculated my maximal stock loss exposure to be 10.8% and I can live with that.

  7. says

    Everything needs to be re-looked at. When I’m looking at my budget, I’m not going out of my way to save 3 cents on gas. No, I look at the big ticket items first. In the case of the U.S., that big ticket item is/are entitlements.

    What nobody is willing to say, and which most smart people are already thinking, is that the party is over. Younger people must be willing to save and provide for their own future. No more hand outs. No more big brother making sure I have every ailment paid for.

    It was great while it lasted for those who made it in the “system”. It ‘s game over for everyone else. And for the better.

    • says

      I know you might not like me since we disagree on military spending… But I agree with your comment above. We have a system that depends on growth, and when the growth stopped in the late 90′s and early 2000′s, we never changed courses and we never stopped the attitude of entitlement.

      As you said, the party is over. At least for awhile…

  8. Untemplater says

    It’s starting to feel like a reality show. Over dramatization, drawn out arguments, and suspense until the very last minute. I think it’s time for the show to be cancelled bc the voter ratings are dropping like rocks.

  9. says

    Quite frankly I’m tired of the bullshit, pardon my French. These idiots don’t know that they are already affecting the U.S. economy by fighting tooth and nail. The market is responding and so are outside governments holding on to these markers that can call our debt. I’m waiting for a credit downgrade of the U.S. government to come any second now and then let’ see what the bond yield flops down to. This crap is stupid and I think that 1/3 of these idiots that we voted in have no CLUE what the hell they are doing and the consequences of their actions.

    • says

      I totally agree with Sandy here. I am so sick of politicians and the fools that get elected into office. Even many of my local politicians are idiots.

      I get to watch Geoffrey Fieger run for office for about the millionth time here in Michigan. I wish ‘ordinary’ people could run for office. However, you gotta have money to become a politician, at least that is how it seems, so a huge percent of the population doesn’t even have a chance of getting elected in to office.

  10. says

    Every time an elected official walks out on a debt ceiling talk, I think of a reality star throwing a drink in someone’s face. That’s what our politicians are acting like.

    You bring up some good points about congress standing up for what they believe in. Although I’m not totally sure they believe what their standing up for.

    But it does seem they’re standing up for what their constituents believe in. Which is the whole point, right?

    I was just listening to last night’s episode of Hardball and one of the guests indicated the business community made a mistake in backing Tea Party candidates. Apparently, Chris Matthews’ guest believes the Tea Party candidates are listening to their constituents and disregarding the negative impact not increasing the debt ceiling could have on the business community. For that, I applaud the Tea Party, regardless of how I feel about them otherwise. That means there are still some politicians who can’t be bought. We’ll know for sure in a few days.

  11. The Wealthy Canadian says

    I agree with you Sam that a deal will be reached by August 2nd. I actually bought a small position in the Horizons Beta Pro Bear (HGD-T) and I’m optimistic for a US recovery but it will take time.

    Nice post.

  12. says

    They are idiots. Sit down and work it out like grown ups. Anyone can see we’ll need to cut spending and raise revenue. It’s idiotic to not compromise. I think it will all work out as well, but this is cutting it close isn’t it? If we owe 100k on the credit card, get an extra job and cut back on sushi and pay the bill!

  13. says

    I may think the current republicans are rough around the edges, but really, I like the idea of a debt ceiling. Much like a credit line on a credit card, the debt ceiling forces us to make decisions about our spending patterns every once in awhile.

    That is the purpose, right?

  14. says

    The politics is getting in the way of a real solution! Neither proposal is the solution, it is just a band aid to get past this deadline. If there is ever a time to compromise and create a long term solution it is now! So far, that is not happening. Why should we think it will be better in the future?

  15. says

    Both sides are definitely fighting for what they believe in. I hope they get it sorted, I don’t appreciate the game of chicken being played with the value of the dollar. Does “honor” your debt carry any significance any more?

    At the risk of showing my hand politically. I don’t think Republicans are fighting for what they were elected for. If the wealthiest 2% were asked to pay a little more in taxes I think they would happily oblige. They don’t need the continuation of the Bush era tax cuts. They were rich before the great recession and are still rich today.

    The balanced plan is the fair plan. Raise the ceiling, cut spending, AND increase taxes on the wealthiest 2%.

  16. says

    I dont admire them one bit – either side. the democrats are saying we are going to force grandma to eat cat food, and the republicans are saying lower taxes. Both are being stupid. They may be fighting for what they believe in, but they are doing JUST that. Fighting for what THEY believe in – they are putting themselves first, and probably their district/constituents somewhere in the top 5, then the good of the country at the bottom. They need to put the good of the country at the top – the only reason they are out there in dc jacking around is because people who held the seats they hold now did that.

    When I was in vegas with my friends this came up, and I was absolutely sure that they would cut a deal – and the one they were talking about at that time seemed pretty good – adjustments to SS COLA, changes in medicare, cuts in spending, tax code rewrite.

    I dont mind them fighting for what they want, but they need to realize that they will never get everything that they want, and they need to prioritize what they do want to ensure that they get what they want MOST. The more time they jerk off with this stuff, the less time they can take to look to the future. Transportation bill needs to be rewritten, new budget needs to come out, new energy policy – it’s not like they dont have anything better to do, they’d just rather bicker like 5 year olds.

  17. Robert @ The College Investor says

    This whole debate is ridiculous because they are combining two issues that are so fundamentally different:

    1) The Debt Ceiling – this is just the limit we can borrow. Our obligations are for monies that Congress has already spent – yes Congress, since they appropriate everything. Obama guides and offers stuff up, but Congress spends the money. Furthermore, we were almost at $10 trillion in debt already racked up under Bush in 2008 (from Wikipedia), and most of the money spend under Obama’s first 2 years was already appropriated under Bush…i.e. republicans who are complaining about debt. Bottom line is that this is more of an administrative task that Republicans are trying to frame as something else.

    2) Cutting Spending – This is the heart of the republican argument. They say we spent too much, but won’t vote to lower the debt ceiling unless we cut spending by the same amount (which makes less sense since they are cutting future debt but won’t raising the current debt ceiling?). I agree we could cut spending, but this argument is separate and should be kept separate.

  18. says

    I remember reading an article 10 years ago predicting all of this and just thinking, “hmm, I wonder what that will be like.” Now I know! Interesting post.

  19. vienyc says

    Standing up for what you believe in? – That does not make a whole lot of sense to me, certainly not when money is concerned. Keep your beliefs within your religious activities and deal with facts otherwise.

  20. says

    I wish I could be as optimistic as you are, Sam. That’s what everybody thought about the Minnesota State legislature at the end of June, beginning of July. There’s no way they’d allow the shutdown of the state government, right? There’s no way they’d stop all road construction, shut down government offices, put thousands of people that are living paycheck to paycheck on an indefinite vacation, right? I mean politicians are in touch with the working man and they would certainly understand a drawn out ideological battle with respect to the budget would be a financial nightmare for thousands of people, right?

    Wrong. My brother in law was out of work unpaid for close to three weeks. Businesses depending upon the sales of camping supplies for the HUGE money making week of the 4th of July were left with a stockpile of stuff that would never be sold.

    The Republicans and Tea Party members are living in the clouds willing to take a hard stance because they are completely out of touch with the working man and have enough money to handle anything that happens.

    The Democrats are willing to shoot down any short term solution the GOP comes up with because they don’t want to go through this battle again around election time because they will certainly take hits in the polls if we have to go through this again.

    I with I could be as confident as you are….but I’m not.

    • says

      Sorry to hear about your bro in law. Do you think the shutdown in Minnesota was for the greater long term good though? Will it make everyone think twice, or thrice about spending so much (in the state) and trying to save more (personal level)?

      The Tea Party folks definitely seem to be a bit extreme and out of touch with normal folk.

      Reminder: Don’t vote for big gov’t b/c this is what we get, and for goodness sake, don’t rely on anybody else for our finances!

  21. says

    Well, you are right about popping some popcorn. It’s political theater at its best/worst. All the players are strutting and spouting to convince the voters for the next election. A deal will be reached & as you say, each side will declare victory. If they compromise any bit at all they will tell their base that they didn’t want to, but for the sake of the country they had to do it. Most likely all involved got their script weeks ago.

    • says

      All just a mirage. I don’t know why it’s BAD to revisit the debt ceiling issue again in 6 months. I revisit my credit card statement every month!

      Must be b/c of elections, and incumbent Democrats don’t want to look bad. The government should be looking at the debt and budget monthly.

  22. says

    While nothing is 100%, I feel confident that the government will get some kind of an agreement in place (I’m not even following it). That said, I do have the largest cash position that I’ve even had (although most of my money is still invested though).

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