Lincoln * Institute

Col. Frank Ryan<br />USMC (Ret.)

Col. Frank Ryan
USMC (Ret.)

President
F.X. Ryan & Associates

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Rebuilding America

The Perfect Financial Storm

by Frank Ryan
 

Since September 2008, the Nation has been in the grip of a painful recession which has affected each and every one of us.

With unemployment standing steady at over 10%, politicians of both parties are placing blame and attributing failure to the policies of either the Bush or Obama Administrations depending upon their party affiliation.

Unfortunately, the blame game masks more serious issues. These issues will hit our nation with a vengeance in the next 18 to 24 months. The double dip recession will soon be upon us and it will have much less to do with policies coming from Washington as from the state capitols of our 50 states.

The perfect storm is brewing. There are four destructive forces at work right now and they are aimed our way. Only by concerted action of each of us and our elected leaders can the disaster be tamed.

To begin the saga of the perfect storm, the impact of the recession on our income must be understood. Virtually every study indicates that pay and social security will either remain stable or increase only slightly in 2010 and 2011. It is this "no pay" raise environment which sets the stage for the coming financial quagmire.

First, electric rates are being deregulated in many states or have been deregulated in recent years resulting in significant increases. Increases of 30% in Pennsylvania are expected. In Maryland, the rates increased over 70% in the past two years. The impact of this increase will be to reduce disposable income for Americans already strapped financially.

Second, health insurance costs in the United States are increasing dramatically as well. The increases are expected to average well over 9% with significantly higher increases than 9% in many jurisdictions. Most employees and employers are facing these mounting costs which cannot be passed on to customers nor made up with pay increases to offset the increases resulting in more financial stress on consumers.

Third, states taxes will increase significantly this year and for the foreseeable future.

The increases state taxes are due to the failure of our elected leaders to properly address the mounting financial crisis facing us for pensions and health care costs for public employees as well as unrestrained growth in state spending while revenues declined due to the first recession.

The declines in the stock market in 2008 only increased the financial woes of an already overstretched pension system.

The tax on property and income from the states will be the next blow which will affect Americans ability to survive this second recession.

The final blow to the economic recovery will be the impact on consumers and their heavy debt load when interest rates begin to rise due to expected increases in inflation and interest rates towards that latter part of 2010. Consumer debt load to income is still high compared to the mid 1980's.

This current crisis though is really about leadership. It is about people, and I mean all of us, reacting calmly and dealing with each issue head on and realistically. Economic growth is fueled by a positive attitude and not a pessimistic one.

The abject fear I see on people's faces and profound confusion are disturbing. The fear is because many feel that our government is out of touch with the reality we all face. Financial stress is harmful to any society. It is a stress that we can overcome with sound judgment and accepting personal responsibility.

As a CPA who helps companies avoid bankruptcy, I can assure you that there are things that you can do to navigate these troubling waters.

First, you need to assess your current financial condition. Know what you owe. Know what you spend and where you spend it.

If you fall into the category of being on a fixed income or do not expect your income to increase in 2010, I encourage you to begin cutting back now. Call you lender if unable to make payments timely. Not responding to calls from creditors will only make matters worse. Accepting what you can do personally and being willing to sacrifice will soften the blow.

Once you have assessed your own situation, the responsibility then rests with government which created much of this mess to begin with.

Our government needs to understand that it is not business as usual. Masking budget deficits with financial slight of hand will not mask the reality of the pension shortfall and burgeoning costs of government.

Only by reducing government spending will the pending disaster be avoided. Increasing taxes does not increase people's ability to pay. It merely increases obligations for which citizens have no options.

In these challenging times, I see so many reasons to be optimistic but only if we deal with our problems directly. When we unite in this common purpose, growth, success and prosperity will return.

Col. Frank Ryan, USMCR (ret) CPA specializes in corporate restructuring and lectures nationally on ethics. He is on numerous boards of publicly traded and non-profit organizations. He can be reached at FRYAN1951@aol.com