This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

3 Truths On Saving The Economy





Some of the leading names in the financial industry released a letter to President Obama and Congress last week, urging them to take action to avoid the upcoming fiscal cliff. While the letter did not offer any specific solutions, it did underscore three truths about what it will take to save the U.S. economy.

Writing on behalf of the Financial Services Forum, the leaders of Goldman Sachs, Bank of America, JP Morgan Chase and several other large financial institutions called for a bipartisan effort to address the U.S. budget deficit responsibly. There are two elements to this. The first is avoiding the draconian fiscal cliff of tax increases and budget cuts due to take effect next year. The second is to put in place long-term measures to bring the deficit down over time.

The hard truths

Here are three truths about the budget crisis that the Financial Services Forum letter brings to the fore:

  1. The solution lies in fiscal, not monetary policy. Current mortgage rates are already at record low levels -- and unfortunately, so are rates on savings accounts and other deposits. In any case, the Federal Reserve has gone about as far as it can in its attempt to stimulate the economy with low interest rates. The letter cites comments from Fed Chairman Ben Bernanke last month that confirmed that no amount of monetary policy could negate the damaging economic effects of the fiscal cliff.
  2. The devil will be in the details. The letter is short on details, which may be a function of the fact that the letter was signed by 16 top executives. Getting such a large group to agree on a detailed proposal would have been much more difficult than getting them to broadly call for bi-partisan action. However, having such an influential group get behind some of the unpopular necessities that it will take to address the budget deficit might have helped provide some political cover for Congress and the president.
  3. Enlightened self-interest is the key. Though the letter avoided details, many in the financial community are on record as saying it will take a combination of entitlement reform and tax increases to adequately address the problem. While there are influential lobbies adamantly opposed to those changes, a little enlightened self-interest would create room for compromise. After all, younger people tend to be skeptical about there being anything left of Social Security by the time they retire, so why would they object to an increase in the eligibility age if that might keep the program solvent? As for taxes, there's a good chance that the wealthy would see their investments perform much better if a credible deficit-reduction program were put in place that it would easily compensate for a moderate tax increase as part of that program.

The reality is that it will take awhile for the dust to settle after the election before action can be taken. By that time, the fiscal cliff will be that much closer.

null

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,461.32 -153.49 -0.92%
S&P 500 1,927.11 -14.17 -0.73%
NASDAQ 4,382.8470 -36.6310 -0.83%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs