The U.S. Capitol in Washington is illuminated on July 30, 2011. (AP Photo/J. Scott Applewhite)
Updated: May 3, 2013 12:15PM
As lawmakers come down to the wire on a deal to avoid default, the real question is what, if anything, have we learned from all this hysteria? And what is likely to happen in the economy that will impact our personal finances?
Let’s hope that the one lesson we didn’t learn was the lesson of brinkmanship — of waiting until the last minute to solve our problems. Because this problem will arrive again, despite efforts to push the next confrontation past the next election. Here are some of the lessons we should carry away from this crisis.
† America cares. There is a bipartisan disgust with the actions of Congress in delaying and playing politics with the most basic issue confronting our economy.
† America is respectful. It may not have come across in the media coverage, but a significant part of America was silently cheering the Tea Party at least part of the way, hoping it would provoke a realistic debate about spending and taxes. Americans will respect differences — as long as they do not jeopardize the future of our country.
† America is smart. It took longer for the president to figure out that America wasn’t going broke on Aug. 2 than it did for the public to realize that government would not come to a halt. Sensible folks came to understand that the government would prioritize — paying interest on its debt, sending out checks to Social Security recipients and the military — even if the debt ceiling deal was not passed. There is, after all, still a lot of money coming into the Treasury every month.
† America faces reality (Congress doesn’t). Seniors were willing to give a bit on benefits, soldiers willing to forego pay raises (though not needed equipment) and some corporations were resigned to giving up some tax loopholes.
The only ones not willing to face that reality were members of Congress, who never, ever, not once announced they were willing to give up some of their perks — ranging from superior health care benefits to free travel at home and abroad to their private gymnasiums. Did you ever hear anyone in Congress volunteering to give up his or her perks? It would have been symbolic — but this whole debate is symbolic.
† America’s government is unique — and better than the alternatives. Yes, passing legislation is messy — but it’s exactly the genius of our founding fathers that we have discussion, dispute and disagreement — without violent power struggles. We should be prouder of the lessons we’ve taught the world than we are embarrassed about the contentious way in which we settle disagreements.
Beyond the generalities about what makes America special, we must also recognize the lessons that the markets will take away from this experience. And those might be painful, unless you are prepared. The world is watching. In some ways, we are very different from the European experience with debt. And in some ways, we are very much alike.
Europe has “papered over” its debt — hoping to push the reality further down the road — stretching out terms of the loans, creating new agencies to “guarantee” payment (even though it has no resources to do so) and generally closing its eyes to the reality it faces.
America, it appears, is making a deal that could force us to at least change direction — to reduce our spending, to slow the increase in our debt, and to give our economy a chance to grow again, based on more certainty about future rules and taxes. But so far, that is all talk.
If the commission that is proposed, and the triggers that are set up, are merely ignored, then we will face the same challenges as Europe — challenges of survival. That remains to be seen in the coming months. And the American people are not going to forget this lesson just because the next day of reckoning is pushed past the 2012 election.
How will we know how well we’re doing? We only have to watch the global financial markets. They’re all hoping the dollar will be saved from the certainty of future money creation to pay our debts. Throughout this crisis, the dollar remained stronger than it might have otherwise, because the alternatives — such as the euro, the Japanese yen, the Chinese reminbi — are so much less appealing than even a dollar weakened by inflation.
Global smart money is searching for alternatives — in gold, commodities, oil and other natural resources. But the world really wants the dollar to remain the center of all trade, all measurement of wealth. Let’s not disappoint them by thinking we’ve solved our problems. With any budget deal, we’ve just made a very good start. And that’s the Savage Truth.
Terry Savage is a registered financial adviser.