Dick Morris targets not only the United States, but also the State of Michigan in particular, when he indicates that we aren’t far removed from the crushing wave of the economic tsunami now sweeping over Greece and other members of the EU. To those of us that have resided in Michigan most of our lives and watched the financial mismanagement that comes out of Lansing, financial collapse has always seemed inevitable. Though it seemingly took forever for the auto industry to melt down because of “Bad Management” it ultimately did and the State’s economic crisis isn’t far behind.
President Obama’s goal of “spending this country’s way to wealth” has failed miserably and can only add to the “EU effect” here in the United States. Locally we can expect a similar effect as our soon to be Ex Governor’s management style has been equally irresponsible.
Taking this to the private sector for a minute, when a client of ours leverages by borrowing so that they can continue to invest in the business, if the return on investment which is driven by sales isn’t there, the client must cut costs, including payroll and related benefits, in order to survive. The client simply cannot “deficit spend its way to prosperity” forever. Its bank, at some point, will stop “papering over” the deficits with more money and the client will ultimately be bankrupt. When there is no longer an adequate return on investment and as a result positive cash flow, the private sector does what it must to survive; manage the expense side of the equation. Our clients understand “The only way they can take you out of the game is if you run out of cash.” State of Michigan under its current leadership has been more about taxing and spending versus cutting.
In addition to the federal government funding which has been used to feed the insatiable appetite of the unions in this state, the other source of funding which is drying up is debt sold by the State and its Municipalities. More and more, sophisticated investors are less and less inclined to buy what is quickly becoming regarded as junk bonds from either source. Case in point: Two months ago we were charged with investing one million dollars for a client in Michigan Municipals. However, the market has become so fragile that the money remains in cash as we look to a safer venue.
Morris points out, just as Athens has turned to Berlin, bankrupt states like Michigan will turn to the federal government to guarantee their debt. That my friends will be a pivotal point in this great country’s future in that it will determine whether we become financially responsible going forward by just saying NO or continue as we have recklessly “spending our way to wealth.”
Morris is literally on the money on his analysis and recommendations regarding what the next steps should be and what they mean to the United States of America. This is an excellent piece well worth the read.
To read the entire article please click the following link The Next Big Economic Crisis.
This article was written by Gary Field, CPA at Numerico, PC. Click here to view Numerico’s website.
