Money And Investing  -

The Government Is Not Always Safe

27 04 06 23 19

-------- At Least Not In Puerto Rico

Many people think that a government job is the safest job on earth. People think that after a few years it is almost impossible to loose a job or salary there. For the most part it is true, but there are greater risks to it.

The US economy has enjoyed growth and prosperity. Prosperity means ever increasing tax revenue at all government levels: federal, state, and local (city / town). Ever increasing tax revenue means that all types of governments can enjoy low interest rate loans and bond issues.

Puerto Rico (my home territory) is going through some difficult times right now. Some of the bonds issued by the government of Puerto Rico are in the “non-investment grade” or about to fall into it if the government defaults on its financial obligations.

The problem is that to pay for its financial obligations (bond interest and salaries for example) the government has to continue issuing bonds (getting loans). To do so they have to show that they have increasing income or a steadily reducing spending (less employees or less social help for example). Increasing income can be performed in one of two ways: people earn and spend more, or the tax rates increase so that more money is collected with the same amount of income and spending. Since the economy is not expanding, and as time goes on a smaller percentage of people hold a steady job, the only option is to increase tax rates and shift the taxation from being income based to consumption based. The local congress doesn’t want to increase taxes or reduce spending and the investors aren’t willing to issue new loans if they don’t increase tax revenue. Talk about Deadlock!

As a result, with no money to pay its financial obligations the government is closing its doors at the end of April. No more non-essential government: and that includes schools! No money no education. Even non essential health care will be available.

Today I have received notices of many friends and family members that will be in forced unpaid leave next week. So much for a safe and steady job!

In the mainland US we should learn from other’s mistakes. Government spending has to be controlled at all levels before we can’t maintain our government running. Keep it small and manageable. Reduce its dependence on loans – balance the budget. And above all, make sure that government jobs growth (percentage) doesn’t outpace the private industry job growth.