The White House Releases the 2011 Budget!
The White House today revealed its 2011 budget which projects a deficit of over $1.6 trillion dollars this year, or 10% of GDP. For reference, that’s the highest level of deficit since World War II. What does all this mean for you?
It isn’t exactly a new thing for me to write about our nations debts and deficits, but I’m once again sounding the alarm because I just don’t think they “get it” in Washington. The White House today announced its budget which ramps up this years deficit to over $1.6 trillion dollars, and then works to reduce the deficit by $1.0 trillion over 10 years. That sounds nice, and yes it is a start, but it’s not even close to what we need. The cuts that are being proposed all derive from the “discretionary” part of the budget. That does include many programs for education, the military, and people dependent on the government for their survival. But it fails to even begin to touch the non-discretionary part which includes Medicare, Medicaid and Social Security, and interest on the debt we’ve accrued.
Furthermore, the government’s budget once again doesn’t just cut programs, but adds a plethora of new ones. I know people like to think of high speed rail as “cool” for example. But if there was a demand for this, I guarantee you some group of investors would put up the private capital to meet that demand. Government has not exactly shown itself to be the most successful venture capitalist and they should quite frankly, just stay out of it.
Finally, I doubt this budget will pass. There are too many pet programs in it for both the left and the right and I would expect to see a huge fight on Capitol Hill as the House and Senate battle this one. It should make for some great television!
The reality is this debt means one big thing to you that will happen. Prices will rise. There are two natural outcomes of this overwhelming debt situation and that is that interest rates will rise as the government takes more and larger shares of the global credit markets resources, and ultimately should the U.S. dollar be replaced as the worlds reserve currency, which is being talked about all over the place, the value of the dollar would slip further and import prices will rise. Especially oil!
So, you and I, as normal people can easily expect rising prices which says, once again to take prudent steps; lock in your mortgages today so you aren’t squeezed with a variable rate mortgage as rates rise, position your investment portfolio to benefit from inflation by buying inflation sensitive items like precious metals, agricultural commodities and the like, and talk with your advisor or broker about more sophisticated investment techniques that actually profit when rates rise, and prices rise. There are investments whose prices appreciate for example, when bond prices depreciate. Or, work with them to find investments that prosper from rising volatility.
The financial path is different for everyone, I know. But generally, we need to act as Chief Financial Officers of our path and establish practices and procedures that achieve our goals. The rising interest rates and rising prices that are headed our way don’t have to hurt you. If you’re well prepared, you can actually prosper in this environment.