John Wasik

The devilish deficit dance going on in Congress right now has been a convenient distraction for big U.S. banks. They’ve not only escaped new taxes for now, but they also are relishing their taxpayer bailout by earning robust profits.

Except for Bank of America, the major U.S. banks are doing just fine, thank you. Yet for all of the abundant generosity and forgiveness of the American people, have banks lent out enough money to Americans to make a difference to the economy at large?

No. Banks are lending less to consumers than they did in 2007, the year before the full-blown financial meltdown, according to recent Federal Reserve Consumer Credit tallies.

Outstanding consumer credit was $2.5 trillion in 2007 compared to $2.4 trillion through May of this year. Revolving credit was down fivemo percent in the first quarter of this year. Total consumer lending was down about $100 billion in 2010 and 2009 alone from 2007 levels.

The net effect was less money flowing to consumers, who are the engine of the U.S. economy. Even if you wanted to build that addition to your home or buy a foreclosed home, good luck getting a large loan from a bank — unless you have perfect credit ratings.

I grimaced when I looked at my money-market fund statement the other day. I was earning zero percent yield.

You’re probably in the same boat. With the cost of money at or near zero, after you subtract taxes, inflation and management fees, you’re looking at negative returns, although it doesn’t say that on your statement. You can do better.

Like most money funds, mine’s not insured by the federal government and strives to maintain a price of $1 a share. But nothing is guaranteed as our fearless leaders haggle over a federal debt ceiling increase and euro zone woes continue.

No matter what plan Washington concocts to reduce the deficit, it’s going to cost you something. “Shared sacrifice” is in vogue, but your pain will be bigger if you’re unfortunate enough to earn wages or need social benefits.

Most conservative deficit-reduction plans shred the social safety net and cherished personal write-offs in unprecedented ways. The core elements of each proposal will pare middle-class tax breaks, Medicare and Social Security.

As Yogi Berra once said, “it’s déjà vu all over again.” The $3.7 trillion Senate “Gang of Six” plan and related iterations bear a striking resemblance to a “Moment of Truth” deficit commission report issued, and mostly ignored, late last year and pieces of a Heritage Foundation plan ironically entitled “Saving the American Dream.”

As  the People’s Republic is entering a “whack-a-mole” phase — where unrest and economic pressures keep rearing its head in different places — it makes it hard to predict whether or not China’s volatility over a strained economy will result in a major meltdown in Chinese stocks. The country has weathered storms before and bounced back.

But if the U.S. defaults on its debt, China will acutely feel the pain, since it’s banked more than $1 trillion in U.S. Treasuries. That’s why you need to ask yourself: Is now the time to “China-proof” your portfolio? While a holding of more than 25 percent of any investment could be hazardous to your wealth, China could be a perilous investment if the country unravels. Here are four cautionary scenarios:

Slow or no growth in the U.S. and Europe
With Eurozone and U.S. debt and housing woes dominating the global financial headlines, you have to ask what impact this will have on China’s export-based economy. Since North America and Europe are China’s biggest customers, this will hurt the expansion of the most populous country in the world. Any high-flying growth stock there will suffer there. A “double-dip” recession is still possible in the U.S. and abroad.

Washington is now acting out a scene from Tennessee Williams’ classic play Glass Menagerie. The ever-fragile players are about to shatter .

Yet this is not the time to turn a farce into a tragedy. A default on U.S. debt will make the 2008 debacle look like a Simpson’s episode. Interest rates will soar through the roof. Everything from mortgage rates to adjustable credit card financing will skyrocket. Payrolls may be imperiled along with Social Security and Medicare payments. Think economic crash and burn — in a big way.

If the credit rating of U.S. debt is downgraded from AAA, that will automatically signal to the global bond market that investors should demand higher yields for taking more risk. Standard & Poor’s has put the U.S. on its ominous “CreditWatch” status and will downgrade unless a debt deal is struck soon.

Here’s a $12 trillion question: Are money-market mutual funds safe?

The industry insists that they are and banking regulators aren’t calling in the National Guard, although the U.S. Treasury Department is considering some emergency measures in case of a U.S. debt default.

Yet with the U.S. default risk hissing like a cobra, Congress and the White House at loggerheads and all the bad debt sloshing around Europe, is there a reason to be concerned?

Fear has reared its coiled head again. On Monday, stocks worldwide slumped on fears that Europe’s financial woes would spread to Italy.

Paging Captain Jack Sparrow. The modern equivalent of pirate treasure islands is holding some $1 trillion of corporate cash by U.S. corporations.

The reason is simple: U.S. corporations don’t have to pay U.S. taxes on the money when it’s sitting in offshore banks. They can defer taxes indefinitely.

While domestic corporations are free to enjoy the many benefits of American infrastructure, the money they offshore isn’t doing North Americans any good. Bring the money back to create jobs and give corporations a reduced tax rate if they do so. It will also trim the U.S. budget deficit.

No fireworks will explode if you can pull off financial independence, but it sure beats working for the man. How do you do it? Do you have to live like a monk? Give up chocolate? Move to a tent? Stop watching the Cartoon Network?

While it helps if you were an investment banker, CEO, professional athlete, movie star or inherited a ton of money, there are other ways to get there. Here are some favorite, little-heralded ways.

Debt is the Devil
The biggest impediment to financial independence is unbridled debt. If you spend more than you make and get into debt, you’re working for the banks. That’s pretty standard advice, although most folks don’t know how to systematically avoid this trap. Like a demon, debt needs to be exorcised. First, get to the point where a bank is paying you to use credit. Use reward cards (they give you cash awards, airline miles or other dividends) and pay them off by their due date. Don’t carry over any balances. If you can’t pay for something when the bill comes due, don’t buy it. Don’t take out home-equity or installment loans. They are not worth it. I have nothing against carrying a mortgage balance — it’s always been called “good” debt. But the sooner you can pay it off, the better. The benefit of getting a tax deduction is overblown. A long-term debt impairs your freedom as much as a short-term one.

Is mean old Ma Bell back from the grave?

In the proposed merger between AT&T and T-Mobile, it certainly raises the ugly specter of highly concentrated control, fewer consumer choices and higher prices. While various labor groups and legislators have endorsed the deal, it could be a garbled signal for most U.S. cellphone users.

AT&T’s many faults are certainly on the tongues of consumer advocates, who fear that cellphone services would be limited after the merger. AT&T would have even more control over prices and the kinds of phones/service available.

Now holding 27 percent market share, AT&T would gain a 44-percent foothold if the T-Mobile merger is approved by the Federal Trade Commission Federal Communications Commission.