Most people know that Congress is putting off fixing any of the problems facing America. They are finding many reasons, but if they are going to use the Obama plan, maybe they need to reconsider. The way the Obama tax break works is that instead of taking out 6.2% of your check for taxes. Their solution is to only take out 4.2% which in essense means they are giving you back your own money, The worst part of that is that they are kicking that "can" twenty to thirty years down the road. It means the money needed to pay your retirement check is being given to you now. THAT IS NOT A SOLUTION, IT IS A DISASTER in the making. There is another sign in the economy that makes it an even worse problem. The statistics for the third quarter of 2011 showed that consumer spending was up. That is good? No that is bad. The reason is that consumer savings were down. That means people are in such hard times they are taking their savings to just make ends meet. It means with all the inflationary costs the average persons paycheck is not meeting their needs. Why is that bad?
The reason the housing bubble burst in the first place. The continual and slow growth of gas prices pushed the average person to the point they had to make choices between a house payment and the other necessities of life. They chose the other. They also started cutting back and as fuel prices fell they started building a hedge. Paying off things like auto loans and credit card debt. Many Americans took advantage of the slight break to put away some money. Now as prices for fuel go back up. The price the necessities of life are going up too. The average American was using that little bit of savings to make ends meet. With no solutions to the job crisis in sight things do not look good. Most people are still getting the tax break till the end of December, but it is not enough. They are still coming up short. If the Congress fails to extend the tax cuts it is going to cause a massive shortage quickly for the average American. Even if they do pass the tax break the bleeding will continue, but slower. The two million who might lose their unemployment will no longer be able to scrape by. They will have to make the same decision that those who lost their homes during the housing bubble made. Do I eat or pay the house payment. Most people find eating far more important than shelter. They can always move to a cheaper place or adjust in some way.
What does all that mean? Well for one the mortgage foreclosures will start rising again and the price of real estate will continue to collapse. More and more people will be upside down in their homes. The ones who are lucky enough to have them paid for and have plenty equity may be okay. Another thing that happens is that the local and state taxing bodies will come up short of projected revenues. That means they can not pay their bills. They will start cutting back even more. The Fed is in no position to help because they are doing nothing to solve the problem. They are simply pointing fingers at each other and saying, "It is his fault." The truth is that it is all of thems fault. Some of my other posts show ways the system could be kick started. The problem is that there comes a point where even those ideas will not work. It will not matter if gas goes back down to $2 or even a $1 a gallon if nobody has the dollar to buy it. That was what happened during the Great Depression. Depression means down. Prices went down to ridulously low levels, but nobody had money to take advantage of it.
The Fed is not working at all. The real problem is that there is no action to produce a solution, If it continues on its present course it will not matter where the stock market is at. It is just a number and the reality is that it means nothing to the average person. If the account you put your retirement funds in is going dry and paying no interest. It is being sucked dry by the markets and there incompetence. There are things that could help, but the present system is not looking outside the box. They continuing to make the same mistakes over and over and expectind a different outcome. There is a definition for doing that. It is called insanity. It definitely seems insane that having so much at their disposal the politicians can do nothing to solve the problem. That is why we need a third party that does think outside the box.