On the Eve of the Vote: Five Things

As we have watched the slow slog towards August 2nd and the expiration of the debt ceiling, there are a few things we should consider in advance of that date and a couple of additional thoughts in the days immediately following. Like most things, the debt ceiling expiration date is mostly arbitrary, much like the turning of a new year or the end of a quarter. In other words, 08.02.11 means little to the average person and in the days following, should not be of much concern. Here's why.

Borrowing: We have been in one of the most favorable borrowing environments since records began being kept. If you qualify for a loan, be it a home mortgage or other big ticket purchase, the date will not change your ability to borrow. It may cost you more but prudent borrowers should have already considered this eventuality prior to beginning their purchase. Interest rates may and probably should go up if an agreement isn't reached. The phrase "lock-it-in" will be considered sage advice as it should be. On the flip side, there is little likelihood the seller of whatever big ticket item you are purchasing may just offer additional financial incentives to offset any increased borrowing cost.


Selling: An increase in interest rates would not benefit those who believe their homes are worth a certain amount. It would stymy the housing market, slow the sale of automobiles and create a situation that most retailers have been dealing with already: more saving than spending. While less spending will not get the economy moving and certainly won't create more jobs, despite the argument in Congress that less spending has the opposite effect. We'll just be stuck in neutral for longer than we had hoped. But not as long as many suggest we will.


Markets, Bonds: If you are a conservative investor with money in bonds, you are much smarter than the media gives you credit. Savvy bond investors ladder their holdings for just such an event and will probably fair well. Yes, the foreign investor might become a little more cautious and the next Treasury auction will be weaker than most hope it will be. But over the long-term, the real reason folks hold bonds, the effect will be offset as time moves on. Yet, if you are in bond mutual funds, you should have little to worry about as long as your holdings aren't too much of your portfolio. If you're older, cash might be a better place in the interim.


Markets, Stocks: More than one person has suggested getting into much safer investments before the 08.02.11 deadline. Cash is okay but if history tells us anything, this might be amongst the worst long-term decisions you could make. Most companies could borrow if they needed to no matter what happens. But why bother. Most of the corporate debt has been refinanced to historically low levels. And most companies in the S&P 500, an index of the largest companies in the country, are flush with cash reserves. That has been the most worrisome part of the recovery: businesses could have hired, they could have afforded to hire but they didn't. Selling stocks even if they dip somewhat should provide an opportunity to buy shares that are worth more for less. If you are buying steadily, this should prove an advantage for those with time.


You: Turn off the television or change the channel. None of what you are hearing, none of the talking heads everyone is trotting out means anything. The politicians involved in the debate are saying little or nothing and in many respects, act like this is the first time such an event has ever happened. Personally, the President should simply invoke his right in the 14th amendment and raise it without Congress. Yes, it will cause an uproar and yes, it would be the right thing to do. But creating tension among the American people is not a solution to solving some of the nation's biggest concerns.

In the three years since the Great Recession began, you should have put all of your plan in place: reduced your personal debt, created a modicum of savings and in the process, increased your contributions to your retirement plans. If you haven't, this will probably send the message again that your wealth is not what Washington thinks it is. You should be much more pliable and hopefully, just a tad smarter - or jaded.

Paul Petillo is the managing editor of BlueCollarDollar.com/Target2025.com and a fellow Boomer.

When Retirement Demands a Revolution

Boomers tend to be an attentive group. They have to be.  They have enormous amount at stake in every turn of the economic universe.

If you are paying attention, you or someone close to you is in serious financial decline.  And even if you have resources that you have now been able to calculate in both present and future terms, you can't help them.  But you feel their angst, understand their pain and feel very close to being in the same position.

This can be passed off to a number of different things occurring almost simultaneously.  It is difficult to pinpoint with any accuracy when a growing economy finally decides to grow faster. Is it relaxed regulation, political fair winds, exploitable tax bases or simply the belief that every man and woman, no matter who and where you enter into the system, can one day be wealthy? We knew what good times looked like and we liked what we saw.

So we acted wealthy. And with each of us acting in concert, we began the economic propulsion that became the "markets", an all inclusive term for everything from stocks to houses. Everything was marketable. And that's okay as long as all of the players in the game are playing fair.  Trouble is, no one told us that the rich don't really want us to be rich and therefore have no real interest in playing fair.  In my opinion, having us be middle class is about where they want us.

Les Leopold, writing in the Friday Huffington Post suggested that there is actually a class war in the making. "The wealthy may loathe hearing about "class struggle," he writes, "but we're in the middle of one -- and it's a doozy." He then explains the way the world worked prior to the creation of class so wealthy, their wealth no longer created jobs as it did in the past.  It simply was unimaginable in size and mostly unspendable. We hear of huge charity donations but not a single one creates a job trend. And that, Mr. Leopold suggests was where this whole breakdown began.

He's right to a point.  We do like the concept of blame. But as he suggests in a revolutionary lilt: "We just want to find a job, or keep the one we have, be with our families and cope with what life throws at us while enjoying as much of it as we can. We don't want to go to war with the richest people in the world, even though we greatly outnumber them. But we can't avoid this battle--it's coming to our doorsteps."  Or as Oscar Wilde writes: "It's not whether you win or lose, it's how you place the blame."

Perhaps it's just us.  We have a view of ourselves that even in this sort of economicsituation, refuses to alter itself. We still see us regaining what we had rather than embracing what really is. Could it be the color in the collar that keeps us from banding together?

White collar workers approached middle class as simply a staging area for something greater. Blue-collar workers tended to come to grips more with the realities of being middle class although they pushed their children to get away from the colored collar they owned. Now, we are, as Douglas Coupland described in his OpEd in the NYTimes titled Dictionary of the Near Future: "Blank Collar Workers - Formerly middle-class workers who will never be middle class again and who will never come to terms with that."

And that is a good thing. Combining the inability to be satisfied with what life has dealt you is far different than aspiring to riches and positioning yourself to get them. We have to be in it as one. As "blank collar workers" we can do what needs to be done and do it without taking it to the streets. How is the problem.  So its no wonder that last resorts be put first.

We can begin with being realists. This is the hand we've been dealt, we need to cope with it.  That is a huge hurdle but until we all make the same choice, that wanting is not the same as needing, instead it is sort of a balancing act between what needs to be spent and what doesn't. Some folks, those friends we talked about earlier are already there. You need to practice as if tomorrow you will be there to.

We have seen this sort of rebooting of the economy before and it takes time. Is it wrong to adopt the medical parlance of living every day like its your last and suggest you think of everyday on your job as your last. It is an admittedly harsh way to approach a plan. But it might be more effective than believing that things are going to get better sooner than they will.  Mr. Leopold is not alone in his thinking that it could be a decade or more before things get back to normal - whatever that may be.

I found it ironic that Mr. Leopold would invoke an old union song asking the question which side are you on. Perhaps that is the answer we are avoiding? We all need to be on the same side.

Paul Petillo is the Managing Editor of Target2025.com and a fellow Boomer