More Catalysts for the Impending Crisis

Somewhere in the sad tale of Raymond Zack lies a warning about the future – the new financial crisis the catalysts for which we were searching yesterday and the day before.

Zack, depressed and on disability, walked into San Francisco Bay on Monday…and allowed the tide to wash him away to his death. He was 52.

The windsurfers and joggers at Crown Memorial State Beach stood and watched. One called 911. Alameda police and firefighters showed up. They too stood and watched.

And that’s all they did.

Funding for the fire department’s water-rescue training program dried up in 2009. That meant firefighters had to use overtime hours to train… and OT has been cut back recently. So no one had the proper certification. “Without it, the city would be open to liability,” reports KGO-TV.

Two hours later, an off duty nurse swam out 50 yards to retrieve Zack’s body. Liability was no longer an issue.

“It’s like you are living in a different country,” a witness told the San Jose Mercury News.

Indeed it is. The country is broke. And the impact of its bankruptcy is beginning to show  from the bottom up. Libraries are closing in Charlotte, N.C. Garbage pickup is being cut back in Columbus, Ga. Camden, New Jersey’s police force has been cut in half.

As early as January 21, 2010 the Atlanta Journal Constitution was beginning to report on the seeds of the new crisis: “About 80 percent of stimulus money has gone directly to state governments,” the paper observed. “Instead of being used to create new jobs, the bulk of the money has been used to save existing state government jobs – teachers, law enforcement and others – and for shoring up sagging state budgets.”

In a new documentary, we’ve tentatively titled “Risk!”, we’ve been chronicling the challenge of entrepreneurs in the post-Panic environment to create and sustain new jobs. The policy mix that has come along with the effort to save government budgets has been anathema, in our opinion, to an environment that encourages entrepreneurship.

Unless the politics change, and people begin to realize that government, even at the local level, cannot be the guarantor of American prosperity, the economy will continue to be hollowed out from the inside. Capital, in large quantities, is being misallocated to saving unproductive government assets… and crowding out investment in job creating entrepreneurial efforts.

Worst of all, it’s not like the government is using its savings to fund their spending sprees. As you know, the US government has no savings. Instead policymakers have chosen to swipe Uncle Sam’s credit card and…poof, everything has been magically “paid” for.

We can’t help but sit back and wonder what the world looks like when that credit card is eventually cut off. Or when it becomes much more expensive for the Federal government to borrow money.

As we pointed out in our first film, I.O.U.S.A., the States can’t print money. They have to cut spending. They have to cut services like policeman, firefighters and trash collection. For most Americans, those cuts won’t be popular. As we’ve seen all across the country, people get angry they things they’ve been “promised” are cut.

But unlike the States, when the Federal government’s credit card it cut off they don’t have to cut back. They can continue to spend. Continue to promise. And continue to run the printing presses day and night to pay for political whims. But for how long?

Addison Wiggin
for The Daily Reckoning