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Hanging onto your wallet is not an option. The feds will find your back pocket. And then there are the other thugs who prey on passengers. Nobody will get home unscathed

Why The Economy Is Like The Subway


By —— Bio and Archives--May 27, 2016

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When you venture beneath the city streets, go through or leap over the turnstile (not recommended . . . a consequence may be a fine, or a broken leg), stroll down the platform to the favored spot where your preferred car will stop, three things can happen. Two are bad. You have a chance to get on the train and reach your destination safely . . . so far so good . . .  or you can clumsily fall or be accidentally pushed from the platform and are now reduced to two choices. You are not be able to avoid the oncoming train, its too late, and your ticket has been punched . . . or you jump aside at the last minute, the train passes safely by . . . and you are inadvertently fried by the third rail! The rats will immediately attack! (see below)

I’m sure readers of Canada Free Press (CFP) are a sophisticated lot and most will know about famed economist Alan Greenspan (AG), head of the Federal Reserve Bank for two decades (1987 to 2006). In spite of his already established stellar reputation, his timing in one instance was questionable. He took on his new job two weeks before the stock market crash in 1987. The market averages plunge 23% . . . the worst one day decline in history, or since. A weaker man, mentally distressed by that event, may have gone to the subway and leaped off the platform, ending it all on purpose! However, the next time AG got it right. He correctly timed his exit from the Fed just before the market crash that brought Obama to the presidency. Way to go, Alan!

I don’t know if AG reads CFP, but if he does he may have lingered over my recent essay (5/18/16) titled “Go To Jail, Do Not Pass Go, Do Not Collect $200.” That piece focused on two dangerous situations: Cumulative world debt requiring servicing which crowds out or excludes expenditures for other worthy needs, and global slow or negative growth of economies that precludes any hope of reducing that voracious debt.

Interviewed on a business TV channel on 5/26/16, 90-year-old AG spoke of the consequences of too much debt. The word “disaster” crept into his dialog, and he wasn’t referring to ED. He remarked that the stock market crashes occurring since 1987 (dot.com, 9/11, and failure of Lehman Brothers) did not fatally doom the U.S. economy because holders of securities were not as leveraged as they are today. A temporary crippling can be recoverable. Conversely, current holders of investment and speculative securities are financed by artificially cheap money created by . . . you guessed it, the Federal Reserve. The potential for devastating margin calls looms over the markets if another decline in averages occurs,a highly likely event. That may be non-recoverable.

To further place the U.S. debt problem in perspective, consider that the government annually takes in about $2 1/2 trillion in taxes. It spends about $1 trillion on entitlements (legal obligations written into law that are direct money transfers to recipients), another $1 trillion to service the federal debt at currently historical low rates of interest, and about $1/2 trillion on all other government needs, including outlays for the disastrous ObamaCare law and the necessarily shrinking military (no money available). What happens if interest rates increase, a sure to happen event? The first two are lawful expenditures (non-discretionary, must happen) and the last one is discretionary.The obvious answer is “all other government needs” must by definition suffer because available funds are shrinking. Even “new math” must reach the same conclusion. And this ain’t fuzzy math . . . it is unavoidable.

Which way do lawmakers leap!

AG further expanded on the debt problem thusly. Entitlements due to non-reversible demographics (the aging population) requires increased outlays. Those legal obligations are growing annually at a rate of 9% while the economy is hardly growing at all, and may be shrinking. This is an unsustainable condition. The obvious answer is entitlements must be addressed. There are ways to attack the problem, but given its description as “the third rail of politics” . . . any pol who attempts to reduce payments to retirees and the sick will be thrown out of office . . . the solution is not easily provided.

But politicians, ineffective as they are at solving problems, can count votes.They know “1%ers”,vilified for being as wealthy as they are, will be the easiest group of recipients to exploit. A means test is one logical way to reduce the gap between escalating required transfers and shrinking available resources. Whack the rich! Never mind that the 1%ers are as entitled to their share as is everybody else who mandatorily contributed to the pot. Changing the deal for them is clearly legal theft, but no one will go to jail for it. Contrarily, almost everyone will applaud!

But, wait! If that’s not enough to get the job done, the rest of us can expect to “participate” in the solution. Hanging onto your wallet is not an option. The feds will find your back pocket.  And then there are the other thugs who prey on passengers. Nobody will get home unscathed.

 



Bob Christie -- Bio and Archives | Comments

<em>Bob was born in Toronto and began his financial career as a trader on the Toronto Stock Exchange. He relocated to California and became SVP and CFO of a $multi-billion diversified financial entity. He served on the board of many companies in Canada and US. An avid yachtsman, he owns a twin diesel ocean going vessel once featured in Architectural Digest magazine. He maintains a hockey web site. “slapshotreport.com” and currently resides in Sausalito, California.<em>

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