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Wednesday, January 2, 2013

The Scorpion and the Frog swimming into the Fiscal Cliff

Eureka! The Fiscal Cliff has been avoided! CNN provides the details here with the article, "House approves Fiscal Cliff Deal".  Time to pop open the bubbly and being to partake in the victory drink! A victory drink laced with a mind numbing combination of fiscal lunacy and rational ignorance in matters of economics and finance. If you think this statement is an endorsement of either "party", first of all, that would be an incorrect assessment  Why? Just please allow me to submit a famous story. A story from one of Aesop's fables, "The Scorpion and the Frog".



A scorpion and a frog meet on the bank of a stream and the 
scorpion asks the frog to carry him across on its back. The 
frog asks, "How do I know you won't sting me?" The scorpion 
says, "Because if I do, I will die too."

  The frog is satisfied, and they set out, but in midstream,
the scorpion stings the frog. The frog feels the onset of 
paralysis and starts to sink, knowing they both will drown,
but has just enough time to gasp "Why?" 

Replies the scorpion: "It is my nature..."

How is this story related to the fiscal cliff? Why should one ponder on a story that seems non sequitur in nature? 

The story displays that regardless of how one presents themselves in public, their true nature will eventually rise up. The frog believed the scorpion's words, and assumed he would not sting him on their voyage across the stream. Alas, the frog was stung, paralysis ensued, sealing his fate. 

Politicians are no different, as their motivations are fueled by the following: Re-Election and Power.  Oh, and I did not forget this one: Money. Do not think for one second that one party is for fiscal responsibility and the other one is more caring for the downtrodden.  Or, another party is for the "Constitution". This is the same mistake the frog made.  Adam Smith stated that humans make decisions in their rational self interest. Politicians are humans, it is safe to assume they operate similarly. 

My advice: Deal in reality. Do not subscribe to the quixotic notion that politicians are sacrificing for your self interest. They are working in their self interest. Next, increase your financial knowledge. Do not place your financial plans based on the fickle whims of the electorate and the folks in Washington DC.  Build your solid financial plans. Otherwise, you will suffer the same fate as the frog: Fiscal paralysis. 


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