Wednesday, August 25, 2010

Headlines Sound the Alarm about Deeper Economic Problems

by Paul Mladjenovic
August 25, 2010
Copyright 2010. Paul Mladjenovic. All rights reserved.

The following three headlines are alarming symptoms of the economic insanity unfolding before our eyes:

1. “Philly requiring bloggers to pay $300 for a business license”

2. “LA unveils $578-Million school, costliest in the nation”

3. “Record Number Of Americans Using Retirement Funds As Source Of Immediate Cash”

Yes, those are actual headlines. They may seem like random and disjointed stories but really they are connected to the same economic and financial crisis that is here now and threatens to get much worse.

Philadelphia is forcing bloggers that make little or no money cough up $300 for what is annoyingly labeled a “Business Priviledge Tax”. The struggling city is searching for new revenue to pay for their over-spending. This silly tax may yield some modest revenue for the city but the unintended consequence will be to chase away budding entrepreneurs. In other words, they will get much less revenue than they think. This is at a time when they desperately need to attract and encourage entrepreneurs.

Many politicians and pundits forget that “demand and supply” is a reference to “consumption and production”. Our country is awash with people that consume and “demand”. However, those that supply us with goods and services (production…meaning ”entrepreneurs and businesses”) are struggling. We need to encourage production as much as possible since this is THE major path to greater economic strength and stability.
History tells us that skyrocketing demand (especially by the public sector) and stagnating or shrinking supply (a private sector that keeps diminishing) is a recipe for economic disaster. That disaster is unfolding right now. Anyway, let me continue…

The second headline is also galling. The Los Angeles school district is spending eye-popping amounts of taxpayer money while the school district and the city itself is drowning in a severe fiscal crisis. To add insult to injury, this particular school system is among the worst performing in the country in terms of student performance and drop-out rates. The politicians and bureaucrats in that once-great city just don’t get it.

The third headline tells us that a record number of folks are strapped for cash and dipping into their 401K retirement accounts. This tells us that the private sector is indeed hurting. I am sure that they realize that taking money out will possibly mean tax penalties in the short-term and a smaller nest egg longer-term. I am sure that they are not doing it because it is a good idea; they are doing it because they need the money.

There are many, many more stories like these across the country. The forecasts that many of you have read from my prior essays months and even years ago are now reality. Very sad! These stories and reports are symptomatic of the deep economic crisis that we have in our midst today. They are also blaring reminders that government is oblivious not only to its own excesses but also to the pain that is being felt by those that support it.

Hundreds of local and state governments are spending lavishly and irresponsibly billions. The federal government is lavishly and irresponsibly spending trillions. Why not? It’s not their money…it is (was!) the money of hard-working and struggling taxpayers. The same taxpayers that tightening their belts…and removing money from accounts that were meant for the future. That future is now looking more uncertain.

Unfortunately for all of us, these are not short-term developments. Many states and municipal governments are pushing themselves (and their tax-paying citizens) toward economic crisis. Many of those collectively responsible for this massive and painful nonsense will only realize “the error of their ways” when it is too late.

To my readers, I say that we may not be able to save the world or change the future but we can do what it takes to protect ourselves and our loved ones. Some points to keep in mind:

Keep striving toward financial safety and economic self-sufficiency. If you are dependent on a third-party (a company or government agency), it would serve you well to…

• Keep accruing cash & precious metals like gold and silver

• Generally avoid municipal bonds or (at the very least) consider only AAA-rated municipal bonds.

• Find new ways to generate income in your spare time.

• Review your investments with those that are familiar with today’s economic problems.

Build your “Financial Firewall” as soon as possible because coming events will be unkind to the unprepared.
Paul Mladjenovic is the author of “Financial Firewall: How to Protect your Money and Investments in the Age of Financial Chaos” and his website is He is the author of “Precious Metals Investing for Dummies” and he edits the free financial ezine, Prosperity Alert.