Insights & Advice


Washington, the country’s worst enemy


The nation has breathed a sigh of relief now that congress has finally done what they were elected to do. The government is back in business and the debt ceiling has been raised. The damage to the country, however, will be long lasting.

Let us remember as well that the eleventh hour deal between our dysfunctional officials is only a temporary solution. Congress voted to keep government open only until January 15th and the debt ceiling will need to be extended once again on February 7th of 2014. In the meantime, few have any faith that the bi-partisan budget talks headed by House Budget Committee Chairman Paul Ryan, R-WIS., and Senate Budget Committee Chairman Patty Murray, D-Wash., will bear fruit in the two months before the next deadline occurs.

The most recent estimates indicate that the government shutdown cost the economy $25 billion. But that’s just the dollar and cents pricetag. The continued uncertainty of U.S. fiscal policy and the fear that the next time there truly will be a debt default could cost us $700 billion over the long term, according to estimates by Macroeconomic Advisers.

From California to Cape Cod, small business owners have been hurt by the government shutdown. Over the Columbus Day Holiday, for example, tourism was hurt by the closure of all the nation’s Federal parklands. Hundreds of thousands of mortgage applicants were held up as well since buyers could not get the information they needed from the IRS in order to close their purchases.

Retailers are in a quandary. Given the uncertainty, there is little confidence that the Christmas season will be a good one. Pessimism among small businesses, when asked about future economic activity, increased 10% in September and nothing about this latest debt deal inspires optimism. Yet, orders have to be filled now or it will be too late. Chances are retailers will trim their orders just to be on the safe side, reducing economic activity even further.

Consumer sentiment has been hurt badly by this circus we call Washington. In a recent trip to Provincetown, MA, I noticed that whether at dinner, on a whale watch or just shopping around town, consumers were actively talking (and worrying) about this latest Beltway Brawl in D.C. Merchants told me shoppers were spending less and were visibly distracted.

Most recent estimates indicate that the pullback in domestic spending could impact the economy in the fourth quarter. Most economists were expecting GDP to grow in the fourth quarter by 2.2%, however, that forecast has been reduced to 1.6%. Clearly, the overall damage to the economy would have been far greater if we had defaulted on our debt.

In hindsight, the shutdown and debt ceiling debate was completely unnecessary. By now even staunch Republicans are admitting that the blame for this last bit of political insanity lies squarely with their party. Unless voters recognize this and act accordingly in the 2014 elections, we can expect that sometime soon we are all going to hit a brick wall.

The Tea Party element within the GOP is bound and determined to create such a crisis in this country.

Democrats should also be held accountable for their own unwillingness to compromise in years past. It is clear to me that ever since 2010 both parties have done their absolute best to hamstring this economy and keep millions of Americans out of work. Instead of coming up with bi-partisan economic programs to grow the economy, our leaders have focused wrongly, in my opinion, on cutting spending, reducing debt and raising taxes all in the name of their misguided attempt to reduce the deficit.

How any of those measures would achieve economic growth or more employment is beyond me.

Posted in Portfolio Advice, The Retired Advisor