Newsletter

With all the headlines and the behind closed doors negotiating, what was included in the bill signed by President Obama to cut the deficit?

The bill will potentially include deficit reductions of $2.1 trillion from 2012 - 2021.

The savings come from two sources.

• $840 billion from budget authority provisions in the bill.
• $1.2 trillion in savings from either legislation approved by Congress OR automatic reductions in spending from something the bill calls "sequestration".

The bill requires a vote on a balanced budget amendment between 9/30/2011 and 12/31/2011.

The bill establishes a Joint Select Committee with the stated purpose to create legislation including at least $1.5 trillion in additional savings from fiscal 2012 to 2021.

If the Joint Select Committee legislation fails to pass, $1.2 trillion in automatic deficit reductions go into place with cuts equally from security and non-security budgets. Security includes: Dept. of Defense, Homeland Security, Veterans Affairs, Nuclear Security Admin., International Affairs and the intelligence community.

Some education programs are impacted. Additional Funds are available for the federal Pell Grant program beginning in fiscal year 2012. However this is offset by the elimination of the subsidized loan program for graduate students and the elimination of federal student loan repayment incentives beginning on July 1, 2012.

While these changes are being enacted, the Federal Government borrowing authority has increased the ability to add to our national debt by as much as $2.1 - 2.4 trillion.

If automatic reductions are required because Washington cannot agree on cuts, starting in 2013 across the board cuts will be made. Social Security, Medicaid, welfare, veterans' benefits and civil/military retirement benefits would be exempt. Medicare would be limited to a 2% cut. Planned expiration of "Bush tax cuts" cannot be used to reduce the amount of the reductions.

Fully $1.5 Trillion of the $2.1 - $2.4 trillion in the projected Federal Reduction in the deficit over the next ten years could come from proposed legislation developed by a committee of 12 Congressional representatives.

What You Should Know

	Title IV of the Budget Control Act of 2011 establishes a twelve member "Joint Select Committee" who are tasked with drafting legislation that will reduce our Federal deficit by at least $1.5 trillion from fiscal years 2012 to 2021.
	The twelve members are six from the Senate and six from the House of Representatives appointed equally by each political party.
	Key delivery dates are placed in the bill to require "timely" progress in the committee. If you want to keep track of progress here are some of the most important dates: 10/14/2011: Due date for Senate and House of Representatives to provide ideas to he new Joint Select Committee 11/23/2011: Statement of Findings is due from the Joint Select Committee which will include estimates of potential savings 12/02/2011: Delivery of proposed legislative language is due and will be made available to the public 12/23/2011: Vote on passage of the Joint Committee bill is due
	The committees recommendations are not limited by the scope of the bill. This means the Joint Select Committee could include spending cuts in entitlement programs, other program reforms, and may include tax increases.
	The Committee's recommended legislation is severely limited to debate and amendments to attempt to streamline the approval or rejection of the legislation.

Will this process work? We'll all have to wait and see.

When there is bad news like the recent downgrade of the U.S. creditworthiness by Standard and Poor's the stock market takes a beating. As billions of worth evaporate in a minute based on nothing other than speculation, is there anything you can do to reduce the risk that it happens to you? Here are some ideas. Please recall that with any investment comes risk. Make sure you understand what you invest in and review your options and risks with a qualified professional before making any investment decision.

Real Estate. Real estate market values were hit hard during the recession and many markets are now starting to recover. If considering real estate as an investment, first calculate the cash flow and rate of return on the investment. During the "appreciation" craze in real estate values, the inflated value of the underlying property was no longer connected to the financial return one could receive with market based rental income. Now with currently adjusted property values, more rentals should be able to support their debt service and provide a reasonable return on capital invested.

Picture yourself returning home from your last graduation party and settling in for a quiet evening with your spouse to begin the "empty nest" phase of your life. The kids are now gone. Or are they? A recent phenomena is hitting America as an unprecedented number of grown kids are returning to the nest. This trend is becoming so well known it has fostered the phrase the "boomerang generation".

What Happened?

With the advent of high unemployment and record levels of college and graduate school debt, adult kids are struggling to make it on their own. There are also discussions about a shift in parents' willingness to help out financially and emotionally more so than in prior generations. In the 1940s 18 year olds were fighting wars in Europe or the Pacific. In the 1960s and 1970s kids were being drafted and many were protesting. Today's world is different, but is it bordering on over-indulging our children.

So what to do if you find yourself in a boomerang situation?

Whether you are a parent or a "boomerang" child, here are suggestions that may turn an uncomfortable situation into a rewarding experience.

	Understand the reason. Understanding why the request to move back home will help you set expectations for each other. Having trouble finding a job is one thing, breaking up with a boyfriend or girlfriend brings quite another. What are your child's motives for moving back? Saving money for a new home? Are they going through a recent divorce? Trying to pay off debt? Getting ready for graduate school? Or perhaps it is simply for emotional stability.
	Understand the potential problems and discuss them. Having a serious discussion before moving back in is important. As a child, you need to make sure being a boomerang hild does not foster a lack of motivation or having you become more passive in a job search. As a parent, you need to be concerned you are not stifling your child's development as a person or as a professional in their desired career.
	Set expectations. Some discussion topics could include: Establishing a timeframe Sharing of household duties Understanding house rules. (curfew, guest policy, groceries etc.) Setting up an agreement; consider putting it in writing Discussing if rent should be charged. How much?
	Define space. The tolerance to accept a messy house when the kids were small is one thing. It's quite different having to pick up after a grown child. Clearly defining each other's space in the house and setting expectations on keeping things like bathrooms clean can help tremendously.
	Be careful with debt. Make sure you do not enable financial behavior that is acceptable as a small child, but enables an adult child to become more passive about developing financial skills necessary to live independently as an adult. Do not sacrifice your own financial future by paying your child's debt. Funding your retirement is usually more important than bailing a child out of their financial predicament. What will they do when you need money in old age because you spent it on them to reduce their debt?

Turn lemons into lemonade.

While there are many inherent problems with the concept of the boomerang generation, there are wonderful opportunities as well. A few examples include:

• Reconnecting with each other when both the child and parents are adults.
• With a roof over their head, the boomerang adult can use the opportunity to explore and develop marketability as an employee by taking an unpaid internship or volunteering to help others.
• Help your child save money for their future goals.
• Adults can get help maintaining their home as they age.

Remember many cultures value the benefits of multi-generational living. The wisdom of experience is passed from one generation to the next and the healthy bond established between generations helps those of all ages. If managed properly the boomerang experience could bring its own rewards.