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The Prelude to Default

A working man, it seems, has nowhere to hide from the dislocations now embedded in the system. A gardener, for instance, might not be able to afford a train ticket to work on Metro North Commuter railroad, which is priced with a penalty fare for on-board purchase at one dollar per mile.

For comparative purposes, a Mercedes 500 E-class can be leased for eighty-six cents per mile - call it a dollar a mile with gas. Subtle economic dislocations like the "Railroad Fare vs. the Mercedes Lease" are ruthless.

Debt may be the root of all evil. My example applies and extends to every stratum of government, be it local, state, or federal. Every single citizen owns a part of the public debt, and those debts have to be serviced or defaulted upon.

We are seeing the prelude to default. Desperate, inventive and futile stratagems are being developed in an attempt to contain a reality gap that cannot be bridged.

So much hidden government debt exists that dislocation and taxes are asserting themselves from the periphery. Road tolls, licensing fees and traffic ticket surcharges are unchecked and unstoppable.

In some cases, these mini-taxes are very stealthy. Every time you record a mortgage in New York State a mini-tax kicks in and part of that money gets allocated to the Metropolitan Transportation Authority. The MTA was willingly taking advantage of the housing boom;

"Mortgage Recording Tax cash receipts for October 2004 year-to-date were $157.4 (42%) more than the same period in 2003. Much of the favorable collections in the early months of 2004 were due to processing delays from heavy volume of mortgage recordings stemming from low interest rates that have continued from 2003 through 2004. While mortgage recording activity was expected to slow down from a moderate increase in interest rates, 2004 mortgage recording activity remained robust as interest rates stayed lower than expected and homeowners continued to re-finance existing mortgages." (1)

Slowly but surely a train ride taken for granted becomes a financial impossibility. What so interests me is the fact that the "workers" I speak to see this problem coming, and understand it. To them it's personal. These people are becoming working poor, locked out of the middle class, but at least they have their eyes open.

The middle class seems to be in deep denial of reality. A college education, a big house with a mortgage and a follow-on home equity line is the limit of their concern in many cases. They have been mesmerized into a state where they are no longer forward-looking.

These regressive mini-taxes cannot be combated through complaint. They harm the weakest first and then work their way up the economic food chain. Ultimately, in default, savers will find out that the bonds they own are worthless.

Default may be coming because the aggregate of all these piranha-like taxes will not pay off the mountain of debt that has been accumulated at every level of governance. This may be why Congress, the President and the press all have so much to say about the Schiavo case.

Mr Schiavo vainly pleaded that "Congress needs to worry about people not having health insurance". Mr Schiavo, your brain-dead wife cannot be free to die a natural death. I just wonder how you will avoid the hospital bills.

You see, not even middle class people are immune to the dislocation threat of a health care system gone bad. Medical bills cause a large percentage of personal bankruptcies, even among the insured! With recent changes to bankruptcy laws, stability can become instability in an instant.

Mr Schiavo, I know deep down that unchecked debt may be at the root of the evil you are personally experiencing.

(1) www.mta.nyc.ny.us/mta/budget/2005adopted/index.html
(2) www.gothamist.com/archives/2004/10/19/mta_fare_increases_in_2006_and_2007.php

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