Unfortunately, the same thing is going on in the American economy right now, but on a much larger scale. Every person is a player, and the chants of, “Panic! Panic! Panic! Panic!” are louder and clearer than ever before. The chants of “Fiscal cliff! Fiscal cliff! Fiscal cliff!” are practically inescapable. And I’m afraid that these taunts have crippled many Americans rendering them useless in fulfilling their personal financial responsibilities.
With the presidential election behind us and the year winding down we should be entering a period of review, planning and celebration. While the winter holidays certainly offer the opportunity for either relaxation or stressful family gatherings — whichever is deemed most appropriate — they also offer a time for review of the year and preparation for the next. There is no better time to review personal finances, budgets and investment strategies than during the closing of a year.
But a dark cloud has been cast over such processes and the apparent uncertainty is preventing many individuals from effectively managing their own finances. While uncertainty has always driven the markets and those who buy low and sell high have always braved the unknown, this tidal wave of fear seems to be vesting itself as an unstoppable flood of negativity. And that, I would assert, may be stalling economic progress more than any government action ever could.
I certainly don’t mean to downplay the importance of the debates in Washington, but even the term “fiscal cliff” has become a misnomer on two counts: 1. It is now more a political issue than a financial one, and 2. With constant counting-down and inexorable updates it more closely resembles a “bomb” than a “cliff.” But still, at its most basic form the fiscal cliff debate offers three options: fiscal accountability with short-term pain (the end of tax cuts and the beginning of reduced spending in hopes of debt-reduction); economic growth at the expense of our nation’s future (extension of tax-cuts, expansion of spending, increase of debt); or continued argument (i.e. stalemate).
There are pros and cons to each solution (even the continued arguing could someday result in a wrestling cage match) but Americans are making a grave mistake by relying so heavily on politicians (whose very job is re-election) and their decision-making. After all, we are at this fork in the road because of the decision-making of politicians. But perhaps the bigger mistake is our newfound reliance on fear.
This fear has eclipsed the very uncertainty that drives the markets. This fear has pulled market participants and individuals out of the field of play. This fear is rendering “buy low and sell high” inapplicable as investors and savers alike wonder if “low” could go “lower” and cower at the notion of tax-reduced “highs.” This fear is in exact opposition to economic growth.
The fiscal cliff deadline is coming. But after that a new taunting chant will arise — and then another — and it too will be capable of distracting Americans from their personal financial responsibilities. We should all prepare to play in a hostile environment or start looking for a seat on the bench. And that is a decision that we can make now.
Andrew D. Hall is a financial planner in Marietta.