As we start the New Year with a number of historical firsts – the inauguration of America’s first black president – an unprecedented and very volatile U.S. and world economic situation that, at least for the short term, finally had the world’s governments and central bankers working together to, if nothing else, save their economies from what some pundits have described as an implosion – to the U.S. government working on a trillion dollars of debt stimulus and bail out package to both prop up the U.S. financial and manufacturing structures.

And all the while providing tax relief to those companies and individuals who, with their hard work and capital, have continued to finance the growth of new jobs and new businesses in America – all of which may be problematic because of the extremely high debt levels the U. S. must initiate and then cover, all at the expense of the American taxpayer.

With the market week this week, shortened by the Martin Luther King holiday on Monday, the trading week started Tuesday on a somewhat mixed front where there will be no major U. S. economic news reports to be released, while a number of earnings reports will be released from two (and others) of the market’s largest blue chip companies.

Depending on how negative or positive those quarterly reports may be will actually go a long way toward setting the market’s tone well into the future.

As Robert Kavcic, chief market strategist for the BMO Capital Markets, suggested, “The stock market is a forward-looking animal that tends to move about five to six months ahead of the real economy, but right now its actions don’t bode well for a recovery until later this year at best.”

For now, earnings are terrible and the outlook is very cloudy, added Jack Ablin, chief investment officer for Harris Trust. For the financial sector, in my view, there are many more worries yet to come, he said.

The FDIC Shuts Down Two More Banks

As if corroborating Jack Ablin’s projection. of more financial firm disappointments to come, the FDIC on Friday shut down two more banks, one in Washington and one in Illinois.

These two banks were the first of the New Year and the 26th and 27th bank failures since the financial crisis began. The cost to the FDIC insurance fund will be just over $97.1 million for one of the two banks, while the second will have its assets taken over by another bank’s “merger marriage,” also arranged by the FDIC.

Cash-strapped state and local governments indicate higher taxes coming

Right now, many cash-strapped state and local governments are in their worst shape fiscally in decades.While most states and their governors and state legislatures will resist any new taxes, they will have no choices but to raise income taxes, or sales taxes, state university tuitions, transit fees, and any other fees they can use or create to cover their respective increasing fiscal deficits, all of which – and maybe more – will help them to pay the freight.

In the meantime, many states from New Jersey to Nevada, are already starting to slash their non-essential budget items to, hopefully, not have to raise taxes at all or raise them minimally so they can say to their electorates “Look what we did for you!”

So what should we do now?

While the answer to this question may seem like a no-brainer, the opposite is the reality. Think of it this way. While the typical response would be to cut spending, your family’s breadwinner just lost his or her job; your city can’t afford to replace that ancient fire truck with a new one; and your state must find a way to replace – but still needed – those non-essential budget items to pay for the entitlement programs that they’re locked into. Now, cutting spending is not that easy after all, is it? Maybe we should actually try to live within our means?

Paul Rendine is owner of the Rendine Financial Group, LLC in Salisbury, Md. You can contact him at 410-860-1137 or at his email address at: prendine@1stallied.com with any comments or questions.