Thursday, February 10, 2011

Impending Debt Crisis Needs to be Addressed

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

With my Fearless Forecast and Top 15 Shockers for 2011 already done, we will be heading back to some more “normal” topics. Those two pieces are two of the more enjoyable contributions I do each year, although they are more for fun than education.

This past week, Yahoo! invited me to the NASDAQ Market Site in Times Square to record an interview based on my shockers list. We ended up speaking for almost 30 minutes and they divided the interview into three segments that were posted on Yahoo! Finance. If you want to watch them, here they are:

Look Out Emerging Markets Investors!

2011 Political Shockers

NOT Your Normal Economic Recovery

One of the country’s themes in 2011 is the impending debt crisis. It’s one of the few things both democrats and republicans can publicly agree on! It used to be a question of “if”, but sadly, it’s now a question of “when”. America has been a global political, economic and military power for about 100 years. If this issue is not dealt with seriousness and a sense of urgency, the U.S. will end up being like previous world powers, wounded and no longer able to dominate.

I have heard comparisons to the Roman Empire, but frankly, I am not smart enough for that analysis. The one that does resonate with me is England or Great Britain or the United Kingdom, whichever way you want to discuss that region. During the 1900s, she enjoyed some of the same power status that America has today. But once she fell from grace, her economy never was able to get back to a leadership role. Sure, that economy can grow, but like some other European countries, it’s been sub par growth from being weighed down by fiscal issues.

Anyway, I am sure there are millions of academics that can explain this better me, but I think you get the gist. I came across an interesting example of how much cutting $100 million from the federal budget actually means. The video pokes fun at President Obama, which in this case, is not my intent. It could have easily targeted almost anyone in government the past 10 years and certainly former President George Bush.

Budget Cuts

It does underscore how serious and almost dire our situation is at the current pace. $100mm is almost nothing. Sad but true. The U.S. has reached the point of only painful outcomes. Trying to grow our way out of the fiscal crisis won't cut it anymore.

And as Bernanke has said many, many times, we have to be very careful not to cut too hard initially and bury the nascent recovery. In reality, the government must agree on a plan to cut a MINIMUM of $100 billion a year for the next 10 years, with increasing amounts as the years go on.

And before you assume I am going to slam Obama for this, think again. While his deficit reduction plans have been seriously underwhelming, all I hear is rhetoric from the other side. Although I am a fan of Congressmen Eric Cantor and Paul Ryan, I have yet to hear any substantive and specific cuts their side would endorse.

I think both parties should cease with the nonsense and garbage and offer the American people details. It's laughably pathetic that the vast majority of politicians want to protect social security, Medicare and defense. It's not going to happen! Throw in the amount we pay to service the national debt and there's really not much left to cut.

If you recall the movie A Few Good Men, at the end, when Tom Cruise is questioning Jack Nicholson on the stand. Cruise yells, "I want the truth!", to which Jack replies, "You can't handle the truth". That's where I think we are with Washington. Americans deserve the truth. We have earned it!

Feel free to email me with any questions or comments at

Until next time…

Paul Schatz
Heritage Capital LLC

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