What's on the menu for next year?
Tess Vigeland: As we are on the cusp of a new year, here 2012, we've reconvened our all-star panel -- or "pundit panel" as David likes to call it.
David Lazarus: The pundit summit!
Vigeland: The pundit summit! Yes, even better. I'm joined once again by the folks that you hear week in and week out, giving you terrific advice on your personal finances. David Lazarus with the Los Angeles Times, welcome back.
Lazarus: Thank you.
Vigeland: And Kathy Kristof of Kiplinger's, hello.
Kathy Kristof: Hello.
Vigeland: Liz Weston, personal finance columnist for MSN. Happy New Year.
Liz Weston: Likewise.
Vigeland: And Chris Farrell, our own economics editor. Happy New Year to you as well.
Chris Farrell: Happy New Year everybody.
Vigeland: And folks, boy, I hope it is a happy new year. I hope it is a happier 2012 than we had in 2011. Kathy, do you think it's gonna be?
Kristof: Yeah, I do.
Vigeland: Hope springs eternal?
Kristof: Well, I suppose. But I'm actually very optimistic about the coming year.
Kristof: Because I see consumer spending again. I think that we are over-worried and under-burdened, and we've paid off a lot of our credit card debt. We've paid off a lot of debt in general as consumers, and that's a really positive thing.
Frankly, the biggest worry I have going forward is the federal government's debt. And I'm going to hope that somebody in Washington will grow a brain cell and actually do something about it. But that would be my one and only worry, is that at some point, the federal government is going to not have the ability to borrow the way it has. And then that... I mean we look at Europe as a worry, but actually Europe is only a worry as a cautionary tale. And we should be paying a lot of attention to that as our federal government should be paying a lot of attention to that.
Vigeland: Chris, you feelin' hopeful?
Farrell: I'm feeling very hopeful. I would echo all those comments, and then just add one other thing: Which is, there's been so much going on in this economy in the high-tech, information technology area. And we're not really paying a whole lot of attention to it. I know we talk about Twitter, we talk about Facebook, but there's all these efficiencies, all these productivity gains that companies have been getting from investments in new technologies. And this just feels like 1995 all over again. 1995: It was the jobless recovery and then the Internet exploded. And then you had the whole dot-com boom. This time, jobless recovery, but the mobile Internet -- the iPad -- it's changing the way that businesses have to work, have to invest, re-organize the workplace. So I think that's really going to kick in 2012.
Vigeland: David, how are you feelin'?
Lazarus: Maybe not quite as sunnyside-up as Chris and Kathy, but generally speaking, I think a lot of the heavy lifting for the recovery has already been accomplished. We've got a new regulatory structure in place, if not fully implemented. We have a mind set out there that there is sacrifice that needs to be done, there is change that needs to be done -- even if we can't agree, how to address entitlements for example, how to bring the budget deficit down, how to address $14 trillion in national debt. At least we're having a conversation about it.
Vigeland: But Liz, I feel like I heard that a year ago. I feel like I heard in January of 2011 that this year was gonna be better, and it turned out to be way worse. I mean, it just got worse and worse and worse as the year went on. I mean, is this "Groundhog Day"?
Weston: Well, you and I will be the Eeyores of this discussion, 'cause I'm not quite optimistic. I do see progress, I do see some improvements -- but I'm still concerned about the consumer regulatory situation. I still don't think the people are getting the protections that they need. And I'm worried about that. I still think the corporations are getting their way too often with our lawmakers, and that makes me angry. I'm worried about the jobs situation. You know, it is getting better, but you know there, are a heck of a lot of people out of work.
And then sort of as an over-arching concern, is we don't have enough people graduating college. We still have about 40 percent of the population going on to get any kind of a post-secondary degree. Only 30 percent get a bachelor's degree -- and that's not where we need to be for the economy of the future. And right now it's a really hard argument to make, because people think college is too expensive, I'm just gonna drown myself in debt and I can do OK without a degree.
Vigeland: You heard questions throughout 2011 about the value of a college education.
Weston: Exactly, and the reality is a college education has never been more valuable than now. And it's just gonna get more and more valuable as our economy changes. And that's a hard idea get across to people that are seeing people come out of college and not having jobs. But the reality is, those jobs that used to pay well for people that just had high school degrees are going away. You know, they're not going to be around. Sixty or more percent of the new jobs are going to require at least a four-year degree. So I see this opening chasm between people who have and the people who have not. And if you don't get your kids on the have side, they're not gonna stay in the middle class.
Vigeland: Liz mentioned the regulatory picture and I want to ask all of you about the future of the Consumer Financial Protection Bureau. We addressed this last week when we were looking back at 2011, and you know, I think we have to look forward at 2012 and wonder what's gonna happen to this thing. You know, it's a struggle to get someone in a leadership position there, there are questions of funding, there are questions of whether it needs to be run by a board, similar to the SEC. But in the meantime, what's happening with consumers? Kathy, do you think that this bureau is actually gonna get up and running and stay alive?
Kristof: You know, I think it's either gonna get up and running or again, we're gonna have political upheaval. Because people are annoyed and they're really annoyed at the fact that something that everybody knew was necessary is being eviscerated by a very corrupt Congress. And so, yeah, I think it will get underway, because I think at some point, the politicians will realize their jobs depend on it.
Lazarus: Well, I think we need to give it a little more credit that we're giving it. This is the single biggest story, consumer story of last year -- and that is, that the Consumer Financial Protection Bureau, which has only been around for five or six months or so, is in fact up and running. It is overseeing credit cards, it is overseeing mortgage lending. It doesn't have full powers, as in for instance, payday loans, because it doesn't have a director in place. But it is doing what we want it to do to a limited extent.
Now what's troubling about all of this is is the way that opponents of this agency -- specifically, our friends in the GOP and their corporate cronies -- they are not giving it a fair chance. And that's really a problem here. This agency has not issued a single enforcement action in its existence. It hasn't yet issued a single regulatory mandate yet. It's mostly just issued advisories and started gathering of information, it really hasn't had a chance to do what it's supposed to do. And that's I think more troubling than anything else, the fact that the political fight is now over accountability and transparency, when there is, in fact, nothing imperical on the table that says these are even problems.
Vigeland: And Chris, even for me, I guess the question continues to come up -- how is it that we are three, three-and-a-half years from the heart of the financial crisis and we are somehow able to make the argument, at least in some quarters, that regulation is bad? It hasn't even been five years since that, and we're at the point where we're saying we don't need more regulation? Boy, we have short memories, don't we?
Farrell: Well, part of it -- and I think there is some truth to this, a little tongue-in-cheek -- but the financial crisis wasn't bad enough. I mean, if compare to what happened in the 1930s, where you had the Securities and Exchange Commission, you had the Federal Deposit Insurance Corporation, you had all these agencies were created -- I mean that was a true disaster of unmitigated proportions. This, in comparison, has not had been on the same scale and scope. And so, my answer to this question -- "What's gonna happen?" -- depends on what happens in the election. Whether it's fair or not fair has nothing to do with anything except for the outcome of the election. The problems aren't going to go away. David mentioned payday loans; you mentioned payday loans. You know, that problem's not going to go away. A lot of the abuses in the credit cards and the mortgage market -- they're not going to go away. How it gets dealt with however -- whether it's through this bureau or perhaps, hopefully, crossing fingers, through an alternative -- is really gonna just depend on who wins the election.
Kristof: That's true.
Vigeland: Chris brought up the election, which of course, is going to be the major story of this year. And frankly, issues of personal finance don't tend to come up, say, in the debates. But let me ask each one of you if you were on one of the panels asking question of whoever becomes the major party candidate for the GOP, as well as President Obama -- what personal finance question do you want them to have to answer? Liz?
Weston: I would ask them how they're going to improve Americans' retirement security, because there's pretty good evidence that 401(k)s are not doin' it. And a lot of people just are not up to the process of figuring out how much they need to save, saving it, not touching it, investing it properly, not taking too much or too little risk and then annuitizing it over their lifetime. I wanna know what the candidate would do to make retirement a possibility, because I think a lot of people are worried about that.
Vigeland: David, what would you ask?
Lazarus: I'd wanna see what their openness and plan would be to addressing entitlements in a reasonable fashion. We saw in the 1980s when the Greenspan Commission tackled Social Security reform that this was a step-by-step process, And that every few decades, you need to revisit this, because things change and you need to adjust the machine a little bit, like all machines. No one seems to deny that we need some sort of social safety net in America -- whether we're talking about Social Security or we're talking about Medicare. But clearly, you just can't set it and forget it. You need to come back and look at it in light of new demographic shifts, new census shifts, new economic shifts. How can the candidates find the wherewithal to do what needs to be done and that we all agree needs to be done?
Vigeland: Kathy, what would you ask the presidential candidates?
Kristof: I would ask them how they are going to communicate to everybody in the country that we all need to sacrifice in order to reduce our federal deficit. And you know, that means Social Security, it means Medicare, as well as it means defense, it means everything. Everybody is gonna have to give something up. How are we going to prioritize, how are we going to make sure that it's not just one group that is suffering in order to solve this debt crisis of our own and how do we communicate this so that we get people to forget their selfish concerns and actually do something for the good of the country?
People don't really realize what a debt like the one we're building up can mean to you in time. So we all focus on "Oh my gosh, no, my taxes can't go up!" Well, you know what? You can target taxes to the people who can afford them. You cannot target inflation and that is what we're headed toward if we don't do something about the debt. So, everyone has a stake in this and everyone needs to accept that they're going to have to give up something that they want -- whether it's a tax break or whether it's paying more or whether it's giving up some thing that you consider yourself to be entitled to. This is not just us; it's for the good the country.
Farrell: Tough love from Kathy Kristof!
Vigeland: So Chris, is there any personal finance issue that you're not seeing addressed that you would like to ask of the candidates?
Farrell: Well, there's a couple, but it is being addressed, but I would put it in the forefront and it touches this whole area of retirement and security and the entitlements that you pay for reformed -- and it has to do with health care.
Whether you're asking that question "What is retirement security really mean?" for a lot of households, whether they look good or they look bad, depends on what happens to health care costs. If you look at the federal government and the long-term budget projections and all the worries that Kathy's been talking about, it has to do with health care. That's the core of the issue. And I think the Supreme Court is gonna make a ruling and that ruling, whatever the Supreme Court says is gonna force the candidates to address heath care reform. What are you going to do? Because if we're going to have retirement security, if we're going to have an entrepreneurial society, if we're gonna have more people being more contract employees and having a little more flexibility in their job life, because lifetime employment in one company has just gone the way of the dodo -- well, then you're going to have to deal with health care reform. And that is the fundamental personal finance issue that all families deal with going forward.
Vigeland: I find it really interesting that none of you mentioned jobs. Although, I suppose, perhaps that's because it does come up in each of these debates. But, do you surprise yourselves at all?
Farrell: It's implicit in all our answers, because without jobs, you don't have consumer spending. Without consumer spending, you don't have two-thirds of the economic activity that makes the wheels spin in this country. So, you know, implicit in all of this is making sure that people are pulling down a paycheck and also covering the other things -- whether it's health care, whether it's retirement, whether it's the whole package of finance that we address on this show on a weekly basis.
Kristof: And frankly, I think the way that politicians address jobs are insignificant. They tend to either address jobs by saying, "Oh, let's cut regulation" or they address jobs by creating stupid jobs for people.
Kristof: I mean seriously! I mean, I don't really think that there's some great economic benefit by creating a bunch of jobs where you're spreading tar on the road way. If you address jobs by actually making the country better educated and better able to cope in the next wave of the economy, then you're addressing jobs. But that's too long term for our politicians. They address jobs stupidly.
Weston: Although, given the conditions of roads in L.A., I'd really like to see a few more roads projects, please.
Vigeland: Me too!
Lazarus: Or at least in front of my house.
Vigeland: As somebody drives the 110 everyday, I'd have to agree. Well, then I wanted also to address something that I think is out of the hands of politicians, which is, I think Kathy you brought up inflation earlier. And there are a lot of questions about what is gonna happen with interest rates in 2012, purview of the Fed. And I wonder if any of you have any prediction. Again, this is one of those things that I remember hearing a year ago that interest rates were gonna rise in 2011. So predictions are worth absolutely nothing, but is there is anything giving us a signal one way or the other? Any of you?
Farrell: I would say the only signal that we have out there is the longevity of these near-zero rates that have been in existence. It's unsustainable. You can't keep money that cheap for that long. So it's inevitable that we're gonna see rates start to go up and there's a good and a bad to that obviously. Borrowing money becomes more expensive, but saving money becomes more... you're more incentivized to do it.
Vigeland: You're getting more than .05 percent on your savings account.
Farrell: So, it's a mixed bag that we're going to see.
Weston: You know, I'm telling people to lock in these low rates. We're probably not gonna see them again. But I also can't tell the little old lady who's on Social Security and trying to get more out of here CDs that she's going to see anything better for a year or two at the earliest. There is a lot of money sloshing around out there. Eventually, it's going to catch up with us. And as Kathy's been talking about with a huge a debt, that increases the chance of inflation. I just don't see it roaring back in 2012.
Farrell: I just don't see the inflation at all, short term, long term. I see the interest rates going up, but of course, I did say that in 2010. I did say that in 2011.
Weston: You weren't the only one.
Vigeland: If interest rates do go up, what's the strategy there for the average person?
Kristof: Well, you know the strategy is to pay off your debt now. And you don't wait until interest rates go up, because they will go up. I mean, the Federal Reserve has used every tool in its tool box in order to keep interest rates low. And I think it's running out of implements to attack it. And so at some point, you know that interest rates are gonna go up, so pay off every variable-rate debt you can. Lock in a 30-year fixed-rate mortgage, because that is about the best deal you can get. And then go forward spending only what you make. Think of that!
Vigeland: Hmm... There's a novel idea!
Farrell: That sounds like socialism to me. I don't know...
Vigeland: All right, before I let you all go, I should've warned you about this, but I would like one prediction from each of you.
Lazarus: You should've warned us!
Vigeland: And I will come back to you at the end of 2012 and see if you were right or not. Liz?
Weston: Oh, what's a safe bet? Gas prices will bounce around. How about that one?
Vigeland: OK. Very good, very good. David?
Lazarus: Consumer spending will go up as things get better. But so will consumer debt. A lot of the lessons that we learned through all of this about safe and prudent money management will be thrown out the window and we will once again seize our God given right as Americans to go out and shop 'til we drop.
Vigeland: If that happens David, I'm gonna fly a banner across the country saying, "I TOLD YOU SO." Kathy?
Kristof: I think stocks are going to be surprisingly strong this coming year.
Vigeland: Hm! Chris?
Farrell: I think the big issue that is an economic issue, it's a public policy issue and it's a personal finance issue -- how to pay for college education.
Vigeland: All right, there you have it folks, we'll hold 'em to it at the end of the year. David Lazarus, Kathy Kristof, Liz Weston and Chris Farrell -- Happy New Year to all of you.
Everyone: Happy New Year.