Beyond the Cusp

July 24, 2013

What is the Real Story Behind Detroit?

If anything about Detroit is true, it was no surprise and everybody has watched this train wreck coming down the tracks for at least a decade or two if not longer. Detroit is not the first city to declare bankruptcy nor is it the first major city to go broke, but it may be the first major city to die from severe bankruptcy. One of the first cities of the modern era in the United States to dance around bankruptcy was Flint, Michigan which reinvented itself and made a comeback. There have been a number of the old steel mill cities which have found it necessary to reinvent themselves and come close to destitution. New York City is the largest of American cities to experience the threat of bankruptcy and received some assistance from the Federal Government in order to redirect the way the city was managed and adjusted the manner that the city government acted and its direction and New York City made a successful comeback. But Detroit is the first major city to not only go financially bankrupt but has also fallen to a level of collapse in the areas of population, functioning infrastructure, employment opportunities, functional education system, or anything which is considered as a basic service or property any modern city would possess. Detroit has few remaining operative emergency vehicles, the police take close to an hour to respond to an emergency situation, the majority of the citizenry are functionally illiterate, and it has an unfunded mandate in the form of retirement funds owed that would bankrupt most cities which have functioning systems. Detroit has slipped beyond the cusp and may very well never make a comeback. We may only have one choice concerning Detroit, plow it under and see if it can be transformed into a productive piece of farmland.

 

But enough about Detroit as there is a larger problem which has been made all the more evident by the calamity that has struck Detroit, and that is the financial disaster that is the National Government which is very close to bankrupt. We have been observing the Federal Government slowly circling the whirlpool of unfunded liabilities which is being enlarged through deficit spending that has risen beyond anything even imaginable just a few decades ago. We have heard for as long as can be remembered about how Social Security is almost broke, how Medicare costs are spiraling beyond the Government’s ability to fund, Government employee retirement benefit payments are ballooning out of control, and among other items, just the interest payment on the national debt is taking an ever larger chunk percentage wise from the national budget despite the inflated amount being spent. There is one thing which is allowing the United States to avoid the imminent financial doom that the payments of only the interest of the debt should have and that is the low interest rates. This is much of the reasoning at the Federal Reserve which is twisting and contorting monetary policy to near the breaking point in order to keep the interest rates at a level which allows payment of the interest on the debt to remain manageable. The government has even found it necessary to manipulate the definition of inflation in such a way as to hide the real rate of inflation which would require interest rates to be increased. What other reason can one give for omitting the cost of fuel, electricity, and food from the cost of living for the determination of the inflation rate? This has been done in order to cherry pick what items are used to measure inflation rates so as to minimize the official measure of inflation rates thus allowing the Federal Reserve to claim there is no measurable inflation that requires an increase in the interest rates allowing the Federal Government to make the payments on the debt.

 

Eventually the interest rates will have to be adjusted higher when the Federal Reserve finally reaches the point where they can no longer keep the lie that inflation rate is minimal if not negligible and they have to take steps to prevent inflation from hitting runaway rates. The Federal Reserve will find that necessity will require a fairly healthy rise in interest rates simply because the inflation resulting from the printing of money required under the Quantitative Easing, of which there have been three separate injections of which the third is one that has been spread over many months for as long as it was deemed necessary and is still being implemented each month. When the interest rates take off they will toll the knell of reckoning because should the interest double, the payments on the debt would double, if they triple the debt payments will triple, and should they grow by more the debt payments will rise accordingly. There have been pessimistic estimates that because of the games being implemented pretending to be a financial strategy that when the interest rates increase and the piper must be paid, the interest rates could rise by a multiple of five or more, that would mean at least a fivefold increase in the interest rates taking them from one and a half percent to seven and a half percent. There is no possible way the Federal Government will be able to operate should the interest rates have any sizeable increase and such an increase appears each day to be more and more inevitable. One has to worry of what happens when the United States follows the model of Detroit and hangs the sign on the doors reading, “Gone Out of Business.”

 

Beyond the Cusp

 

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