Financial security in economic uncertainty

Deficit, debt, interest rates

There are those who consider our budget deficit - which just shot past the eight-trillion dollar mark - as a sign of prosperity. This doesn't include the controversial "unfunded liabilities" of Social Security and Medicare - which currently stands at $53 trillion!

There are, of course, several options we could use to reduce this staggering deficit. We could raise taxes - an unpopular strategy.We could decrease spending. We could rely on inflation, stalling on debt repayment so we could repay our obligation in "cheaper" dollar. None of these alternatives are easy, and all carry a tremendous economic, and political price. As the deficit mushrooms, the future becomes less and less secure.

What about interest rates? As a general rule, when the stock market is heading up, interest rates are falling, and vice versa. When the rates are low, it is an opportune time to borrow money, and at the same time a poor season to invest. When the rates are high, the opposite is true. As interest rates shift, many questions abound. Where should I put my money? How long should they be tied up. How often does interest rates change? The budget deficit, inflation, taxes, and stock-market swings are just a few factors that complicate our planning efforts.

More frightening are real estate deflation, the declining dollar and a string of bank and business failures. With so much uncertainty, how do we maintain financial stability?

Action Item:

In light of your long-term goals (which may include retirement, college educations for the kids, owning your business, or special giving), how close are you to where you'd like to be? Perhaps you haven't really thought through your goals. Even so, try to locate where you'd like to be financially on those charts when you hit retirement. What would it take to get there?

Today's Bottom Line

Compounding is a financial tool that helps us manageHis resources responsibly.

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