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Fletcher: Something needs to be done soon

June 26, 2012
The Alpena News

As I have been attending picnics, summer parties and graduation events, friends and neighbors have been suggesting topics for this column. Ann Glawe was first and she likes a number of different topics.

Barb White said she likes to read the weekly offering but sometimes disagrees with what I have written. Great! The purpose isn't to have you always agree - how boring would that be? The intent is to get you thinking about the issues. Don't just disagree but rather think about why you think I'm wrong. Could you defend your point of view? If not, is it still a valid stance? I think we live in a highly diversified economy where sometimes there can be a multiplicity of "correct" beliefs.

Gordie Collins asked if I'd say something about the harm that low interest rates are doing to fixed income people. He's absolutely right. These almost non-existent interest rates being offered on money market instruments and checking/savings accounts hurt seniors especially.

The financial gurus tell seniors to move out of heavier equity weighted portfolios into more fixed income instruments like corporate and Treasury bonds. If we did that, our income dropped, and if we remained in stocks the market fell.

Worse yet, pensions are large investors in both equities and bonds and the values of the assets also dropped.

So, Gordie, even though the continued low interest rates haven't given our country enough horsepower to get out of the great recession, the powers that be in Washington are insistent to try it again rather than fix fiscal policy by lowering taxes for the job creators. It's the class struggle policy of the administration that prevents the implementation of a tax lowering fiscal policy. You're right, but we are unable to correct the problems that the low interest rates are causing.

It's time to take note of a phenomenon occurring in local taxing units this time of year. Almost all of the schools, townships, counties, and other political subdivisions are reporting budgets. The accounting method for this information is as follows: Starting balance in the checkbook plus expected tax collections minus expected expenditures equals ending balance.

In almost all cases the ending balance is less than the starting balance. This means no significant cuts to balance budgets are not being made to reduce the drain of cash balances.

Cash is the seed corn. We are progressively eating up our rainy day funds. The city doesn't want to cut jobs and the schools and townships don't want to merge. The clock is ticking and as Bob Dylan sang: "The times, they are a-changin." Either local leaders act now while they still can, or wait for a state receiver to take over and they will lose all local control.

To wait to take action means that you believe that growth will start soon enough to provide enough tax revenue to maintain the status quo. If you are an elected official you should quantify where this growth will occur as there is no land zoned locally that can accommodate the beginning of a turn around in the local economy.

Government can provide the structure to encourage growth, but government cannot create growth as, in economics, all things governmental are an expense. Government cannot spend its way to prosperity for its citizens.

Stephen Fletcher was graduated decades ago from Cornell University with an A.B. in Economics and from Michigan State University with an M.B.A. He has lived and worked in the decades from graduation until now in the Alpena area. He thinks Economics is fun and interesting.



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