When I was a kid, I loved watching western movies. A common scene in almost every western is the showdown, the culminating battle between the good guys and the bad guys. This usually takes place on a dusty road in the middle of town as scared and defenseless citizens look on, taking cover behind swinging wood doors and shuttered windows.
What I loved about those movies, and particularly those scenes, was the tension and that ultimately the good guys won, justice was restored, and usually the hero got the pretty lady. As a kid this was appealing.
Now that I'm an adult, I understand that while showdowns happen all over the world, there is often not a happy ending. This makes the stakes much higher and the tension much more tangible.
This week, showdowns are happening all over the world.
The Middle East Showdown
One of the biggest showdowns happening is between young, pro-western, educated citizens in Middle Eastern countries and the old ruling religious and military, corrupt governments.
In Egypt, the result of weeks of peaceful protest was a successful overthrow of Honsi Mubarak's thirty-year reign as President. For human rights, this is a victory as Mubarak was a brutal dictator who oppressed those who opposed him with imprisonment and sometimes death. In the aftermath, the military has taken control of the country, abolished the constitution, dismissed the parliament, and promised to hold free elections in six months. The world will be watching to see if this really happens.
The protests in Egypt have strengthened protesters in other Middle East countries as well. Protests have overturned the government in Tunisia, and unrest is growing steadily as tens of thousands of protestors are taking to the streets in Iran, Yemen, Bahrain, and Algeria. There's even calls for protests in Libya, where Col. Moammar Gadhafi has ruled with an iron fist for 41 years. And in other countries like Saudi Arabia, there is growing tension.
All over the Middle East, these showdowns are demolishing the political realities that have stood for decades. But a happy ending is far from certain. While a rise in democracy is encouraging, in great times of upheaval, bad people can assume power. There is fear by many that the result of these upheavals will be a rise in militant Islamic extremists, not moderate pro-western governments. If that happened, the result would be bad for both the world economy and for world security.
It will be important to keep an eye on that showdown.
The Budget Showdown
Here in the US, the lines are drawing for a big budget showdown. On Monday, President Obama released his proposed budget for the 2012 fiscal year. The budget, despite much talk from the administration on the need for fiscal responsibility, calls for a record deficit of $1.6 trillion, the biggest in US history. This deficit is even larger that the Congressional Budget Office's estimate of $1.48 billion and a significant increase over last years $1.3 trillion shortfall.
The budget does call for spending cuts, but pushes them off a couple years, effectively pushing the problems forward. According to The Wall Street Journal, more than 95 percent of the proposed budgetary savings would happen after President Obama's first term is over and almost two-thirds of the promised deficit reduction would happen in 2016.
Additionally, the savings in the budget rely on about one third of cuts to discretionary domestic spending, which makes up about 15 percent of the total budget. The rest is made up through tax hikes on high-income workers and businesses.
This proposed budget is a big disappointment to the Republicans in the House, who are calling for immediate cuts of $61 billion in 2011, with even deeper cuts for 2012. It's almost assured that Obama's budget will not survive in the House and will get cut to shreds. Many think that this is part of the White House's strategy, leaving the hard cuts and decisions to political opponents and then attacking them on those decisions. That remains to be seen.
Two important dates are coming up in this showdown. In early March, a stopgap-spending bill that's funded the government expires. If that bill isn't extended, the result will be a government shutdown. And in May, the government will hit its statutory limit on government spending, the debt ceiling. The Republicans are planning on using the showdown in May to push for deep spending cuts. The result will be a potentially epic showdown that will pave the economic road of the US for years to come.
Noticeably absent from these budgetary discussions is any mention of Social Security and Medicare, which together along with other entitlement programs make up 60 percent of all Federal spending and are expected to grow to 68 percent of all Federal spending by 2021. Overall, it's estimated that costs for Social Security will grow by 71 percent, Medicare will grow by 72 percent, and Medicaid will grow by 115 percent over the next decade. These programs, if eliminated, would wipeout the Federal deficit.
Of course, no politician will touch Social Security and Medicare because while they understand people want to complain about the deficit, they also know that no one wants to pay the price of the tough decisions it would take to tame our budget. According to a survey from the Pew Research Center this month, only 12 percent of Americans supported spending cuts on Social Security and Medicare. Touching those programs is political suicide.
As I wrote about last week, people don't want to pay the price today, when they can push it forward to future generations. But the price will be paid.
Winners and Losers
Wherever there are showdowns, there are winners and losers. The same will be the case with the Middle East showdown and the budget showdown. My hope for you is that no matter what showdown happens in your life and in the world, you'll be a winner as well. The best way to increase your chances of winning is to increase your financial education. Stay vigilant, learn all you can, and apply your knowledge.