Coping With The “New Normal”
So in the week I was away purchasing a new house and going to visit my family in God’s Country (aka Long Island), the government solved the debt crisis it created by pushing the can down the road for a few more months. The ironic thing is that although this crisis was started by people dedicated to reducing the role of government in our lives, the end result has been to make us more dependent on what goes on in Washington.
First, although the debt limit deal establishes a framework for the Senate and the House to negotiate a 10-year budget plan by December 13th, anyone who honestly believes this is going to happen should be busy sharpening their pencils to make their Christmas list for Santa. The dysfunction of Washington in which we lurch from crisis to crisis without compromising on a comprehensive budget plan is here to stay as long as people continue to elect House Republicans in districts gerrymandered to produce extremist idealogues and talk radio pundits continue to extol the virtue of Senators like Ted Cruz (in truth, a few more Senators like Ted Cruz and we might as well just hand over the mantle of international leadership to the Chinese and get it over with). If there is no budget deal, another round of automatic spending cuts equalling $19 billion kick in on January 15, 2014. Plus, we could still be looking at another debt limit increase debate as early as March.
What this means for credit unions is that, while we have to remain vigilant of a grand bargain that puts our tax exemption at risk, it is time to start highlighting other parts of our agenda, such as secondary capital and MBL Reform. The truth is we have too much that needs to be done legislatively to spend so much time on defense, no matter how important the goal. Don’t get me wrong, in a political environment that is this fluid, we have to remain vigilant about protecting our core interests, but it’s time to both walk and chew gum at the same time.
Secondly, the FED bond buying program will continue for the foreseeable future. Ben Bernanke cemented his reputation as the smartest guy in Washington by going against the conventional wisdom and pushing his FED colleagues to continue the bond buying program when everyone thought it was time to begin ending it. Can you imagine how bad the economy would be today if the continued economic uncertainty was coupled with spiking mortgage interest rates? The down side is, of course, that your credit union will continue to have to operate in a low-yield environment. Have fun.
Thirdly, the most annoying headlines are the ones that talk about a crisis averted. In truth, Washington’s antics have a both direct and indirect impact on the economy. The government shut down slowed the economy; the only question is by how much. Standard and Poors estimated that the U.S. economy will grow 2.4% in the fourth quarter as opposed to the 3% it projected before Washington’s antics kicked into high gear. But the more important effect is psychological. If you have a member with a small business, is she going to think twice before hiring additional employees while the merits of the new health care exchanges are still being debated? If you have a member who is unemployed and in his mid-fifties, is he more or less likely to give up his job search today than he was last week? Personally, I don’t see much light at the end of the tunnel. All this means is that this period of lower yields, sluggish economic growth and government dysfunction is here to stay, at least for the foreseeable future. As a matter of fact, if I were in marketing, I would start thinking about running campaigns tapping into this new normal by telling people we are here to help them get on with their lives no matter how much government might try to get in their way. On that happy note, have a nice day!