NEW YORK (TheStreet) -- Why is the budget battle as monumental an issue as it is? Over the last 50 years, the U.S. federal government has spent an average of 20% of its economic output (GDP). It has only averaged 18% of GDP in tax revenue. In other words, for 50 years, our elected politicians have regularly spent more than they had in the coffers.
And that's not all.
Right now, the federal government's gap between revenue and spending is larger than at any other time in the previous five decades. The U.S. is spending close to 25% of GDP while taking in only 16% of GDP, leaving behind annual deficits in the trillion dollar range.
Unfortunately for market-watchers, neither Republicans nor Democrats believe in the other side's prescription for "righting the ship." In essence, most congressional Republicans genuinely believe that the country suffers from a spending disease; most Democrats honestly feel that increased tax revenue is the key solution for improving the country's prospects.Investors, on the other hand, simply want a deal to end the immediate fiscal woes. Similarly, families are perplexed as to why the parties haven't agreed on a plan to raise some tax revenue and cut some spending simultaneously. How difficult can it be to come up with a "balanced approach." So far, markets have been reasonably sanguine. It appears that President Obama and Congress may need to do little more than announce that a deal is very close. In that manner, riskier market-based securities would likely accept the verbal confirmation, even if a voted-upon arrangement does not take place until mid-to-late January. Then again, if rough-n-tumble negotiations do not begin to show progress soon, patience may wear thin. The pressure to take capital gains in 2012 may be overwhelming. And that's the scenario that investment account owners hope to avoid. Of course, not all stock ETFs are moving in lock-step with progress (or lack of it) in Washington. There are a number of exchange-traded investments that -- while not immune to across-the-board panic -- are content to move to the beat of their own drum.
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