Sometimes a simple visual can help everyone gain perspective around what is fantasy and reality!

I was once again a guest on the famous DriveThruHR daily a few weeks back (Aug 8, 2011). We had scheduled my appearance about 2 weeks before and how funny was it that on the Monday they asked me the question “What keeps you up at night?” that Standard and Poor’s had just announced the downgrade of United States from AAA to AA. Ahhh… well here we are; William Tincup, Bryan Wempen and I discussing Work, Business and the affects of the S&P downgrade. I am no economist but I am aware!

Enjoy and let me know what you think!

(A short commercial may run before the interview begins)

NOTES:
The Debt Ceiling Story – An analogy (From the MarketingHeadHunter.com):

The U.S. Congress sets a federal budget every year in the trillions of dollars. Few people know how much money that is so we created a breakdown of federal spending in simple terms. Let’s put the 2011 federal budget into perspective:

• U.S. income: $2,170,000,000,000
• Federal budget: $3,820,000,000,000
• New debt: $1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $38,500,000,000 (about 1 percent of the budget)

It helps to think about these numbers in terms that we can relate to. Let’s remove eight zeros from these numbers and pretend this is the household budget for the fictitious Jones family.

• Total annual income for the Jones family: $21,700
• Amount of money the Jones family spent: $38,200
• Amount of new debt added to the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Amount cut from the budget: $385

The S&P Downgrade – Background: AAA to AA+ 

• Standard & Poor’s – AA – remember that this group also helped hurt the markets with their AAA ratings of the mortgage backed securities
• Moody’s - AAA
• Fitch - AAA
• The highest rating for the first time in 70 years
• The rating change is and should not be a surprise but there are 2 main reasons: (1) We spend more than we have coming in and (2) politics (It is clear that the rise of the Tea Party and the pledge of Republicans in general to never raise taxes, along with the Democrats unwillingness to cut Social Security, produced the downgrade)
• We should not be worried but we should definitely become aware.
• More than just an indicator of US politics, business practices and personal debt

So there will be two things we will need to focus on

• Employee Motivation
• Leadership Challenges (99% of the company looking for 12 people to decide)

Business (Leadership Challenges): China complained but is still buying US Treasuries. Why? Out of safe bets we are still the safest.

• I am not an economist - China keep its currency value artificially low
• One way they do this is by buying US treasuries
• This low value of the Yen keeps their goods and services low and marketable globally
• Being able to sell your goods globally at a much lower rate than other competitors keeps you more competitive.
• This affects US companies in their ability to be and stay competitive
• High Competition leads to the potential of Lower margins and possibly an increase in operating costs
• This affects a business’s ability to maintain staff leading to the situation we are in now.

S&P Work (Motivation – Physiological and Safety):

• On average countries with lower ratings have higher interest rates.
• So borrowing costs of not only the U.S. gov’t but also American consumers is likely to go up, even if not significantly at first.
• What’s more, Treasury bonds, long one of the most stable securities in the market, are likely to get more volatile.
• Stock and retirement will definitely be affected in the short term
• Consumer and employee confidence (leading to speculation) which is the main reason we went into a depression (Oct of 1929)

As you can see from the graph above Americans had their beliefs around raising the debt ceiling. With the recent downgrade of US to AA by Standard and Poors the following article seems rather fitting. Janet Harrah is senior director of Northern Kentucky University’s Center for Economic Analysis and Development. This article appeared on July 31^st, 2011 edition of the Cincinnati Enquirer. My opinion has paralleled Ms. Harrah’s for awhile, however, we often forget that a fix to our most difficult issues rely more on us changing our habits than that of our government! Enjoy…

The American debt crisis is played out on a smaller scale every day in workplaces across America. You head off to work in the morning. At the end of the day, if you want to keep that job, you please your boss. For politicians, the boss is the American Voter.

So what is wrong with those politicians in Washington? Why can’t they reach a compromise? Actually, those are the wrong questions. The real question is: what is wrong with American voters?

Most Americans seem to understand we can’t spend more than we make over the long haul when it comes to our own personal finances. Yet, when we enter the voting booth, we seem to believe it should somehow be different for the federal government.

When forced to face the current stark fiscal reality, our elected officials propose one of two distinct viewpoints as if they were mutually exclusive: Democrats insist the problem has to be solved by taxing the rich and no one else. On the other hand, the GOP insists the problem has to be solved by spending cuts.

Here is the problem with that stark contrast in viewpoints. Who are the “rich” we want to tax? Is it anyone who makes a dollar more than me? Is it the small-business owner creating jobs and profits? And which programs should we cut? Virtually every voter benefits from one or more federal program and the politicians who want to be re-elected have to find acceptable spending cuts in programs that are large enough to impact the deficit and are at the same time not too objectionable to their constituents.

In other words, regardless of political party, it is as if we each tell our representatives, “Solve the problem without raising my taxes or cutting the spending that benefits me.” Such perspectives have led to each party taking an unswerving hard line in the current debt crisis negotiations.

With the 2012 presidential election looming, yet still a year away, how do the parties compromise without somebody losing face? The likely outcome is a deal that pushes the hard choices off until 2013. At that point, it will be: Debt Ceiling Crises: Round Two.

The only real way to deal with the long-term issues involved is for every American voter to embrace the concept that they must be willing to participate in the sacrifice. Our neighbors cannot and should not bear the burden alone.

If Americans are truly interested in improving the fiscal health of the country, we will tell politicians, “I am willing to pay more taxes,” or “I am willing to have cuts to spending that benefit me.” For example: if you are currently living on Social Security, are you ready to accept a freeze in benefit levels for the next five years? If you are heading off to college, are you ready to foot the bill without Pell Grants or federally backed student loans? As a homeowner, are you ready to forgo the mortgage-interest tax deduction? If you are in the 15 percent tax bracket, are you willing to pay an additional 2 or 3 percent in federal income taxes?

We, the American voters, are the ones who hold the solution to this crisis, not the Beltway politicians.

It is up to us, as the government’s bosses to make certain that our country’s finances are put back in order. That will only happen when we consistently reward those officials who are willing to make the hard choices by re-electing them. Until then, stay tuned for more turmoil.