Blog | Personal Finance

A Stick in the Spokes

When I was a kid, my friends and I liked to ride bikes around the neighborhood. Being boys, we also liked to do mischievous things. We were always pulling different pranks on each other, and one prank was to shove a stick into the spokes of your friend's bike wheel as he rode by. It was amazing how quickly a smooth-running bicycle would come to a halt when that stick was shoved in—and it was equally amazing that no one ever went to the hospital.

Last week, the so-called economic recovery experienced its own stick in the spokes. For months now, the talking heads have talked about the great news coming out of the economy and how the recovery was picking up steam. For instance, they've been lauding optimistic data about holiday shopping and an uptick in people buying houses. All that came to a crashing halt last week when it was announced that only 39,000 jobs were added to the economy and that the unemployment rate had gone up, not down, to 9.8 percent—dangerously approaching the mental 10-percent barrier.

If anything, this stick in the spokes got the talking heads thinking they'd better back off all this rosy talk about the economy being so great. But the reality is that the jobs report is not the only stick that's holding up a true recovery. Despite what the powers that be would want you to believe, the world economy and the US economy are still in very bad shape. Here's just a sample of some of the sticks in our economic spokes:

• The euro-zone is still experiencing a very dangerous debt crisis. They've already bailed out Greece, and now they're bailing out Ireland. And as the Wall Street Journal reports, there are "broad fears that the debt crisis that has already trampled Ireland [is] on its way to Portugal and even Spain—the euro-zone's fourth-largest economy, representing about 10% of the currency bloc's economic activity." There is fear among investors that the euro-zone could bring down the world economy.
• The US dollar is continuing to take a pounding, which makes sense because Fed Chairman Ben Bernanke is doing all he can to destroy it through the Fed's third quantitative easing program—a.k.a., printing money. Many had hoped that the upbeat economic reports would give the Fed a reason to cut short its asset-purchasing program—buying our own debt—but the jobs report has all but killed that hope. So, be prepared for the dollar to take a beating for a while. This means savers will continue to be losers.
• The clown show in Washington can't get its act together. Congress is having a hard time coming to a consensus on the extension of the Bush-era tax cuts. They also can't get their act together to repeal the Alternative Minimum Tax credit, which isn't really a credit at all but rather a way to rob the middle-class. The tax, which was created in 1969 to affect about 200 taxpayers, may put a stick in the economic spokes of families making as little as $60,000 a year with an average burden of $2,000. If Congress can't figure out these tax issues before tax season hits, it will cause havoc.
• One reason Congress can't decide on the tax laws is because they need more money to fund their deficit spending. The current federal debt limit is $14.3 trillion. That limit is expected to be met by April or May. Before hitting the debt limit, the government must either agree to increase the limit or to cut spending. Right now, there's a war going on between those who want to keep spending and increase taxes and those who want to stop spending and decrease taxes. Many middle-class taxpayers will be the collateral damage in this war.
• And to top it all off, WikiLeaks is threatening to release a huge cache of documents that promise to take down a large American bank for good. Of course, it's no surprise that since that announcement their website has been hacked and attacked. The site is no longer working, and the site's founder, Julian Assange, was arrested today in London on rape charges.

I don't share all this news with you to discourage you. Rather, I believe that knowledge is power—and the new money. Those who buy into the lie that our economy is recovering become complacent and are in danger of getting financially decimated. I want you to be vigilant.

As kids, when we were thrown off our bikes by the sticks in our spokes, we'd get up, dust off, laugh—and maybe fight—and get back on the bike. While it will be sometime before the US economy is riding smooth again, you can get back on your own bike and ride. By knowing what the sticks look like and that they're out there, you can avoid them tripping you up.