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The Scalded Cat

Darek’s January 2010 column



I started my hike early, but had walked further than planned, so, to shortcut back to the house, I stepped from the path, to cross though a thicket of blackjack trees and underbrush. I was enjoying a few days with friends who lived in the hills of northern Oklahoma. It was a hot, July morning.
The walk had made me hungry. I thought of breakfast, of coffee and pancakes, syrup and melted butter. Thus distracted, and a quarter mile later, I casually pushed aside some brush and damn near stepped on a fat, penny-brown, copperhead snake.
It pitched upward — like lightning — to strike at me.

I reeled backwards, swifter than he, thankfully, in a feral reflex surely drawn from ancestral blood.
The snake’s twin fangs — snow-white needles arched across a daisy-pink mouth — passed within inches of my leg.
All in less than a second.

It wasn’t my first encounter with a poisonous snake, or my last, but this one — so unexpected on a sunny morning — scared the hell out of me. Worse, however, was to realize that I stood in a sea of underbrush — how many more snakes were there?
Another early morning, in a European city, while boarding a crowded subway car, I discovered a smallish woman in a blue, Sunday-school dress stealing my wallet. With thin fingers, she was lifting it from my front trousers pocket. As with the snake, I reacted before thinking — I quickly grabbed her hand and stopped the act. Unfazed, she pulled away and melted into the station crowd.
All within a second.
I was in the middle of the city — how many pickpockets were there?





“El gato escaldado del agua fría huye” is a Spanish truism that translates to “The scalded cat runs away from cold water.” The phrase reflects what we learned as children: one doesn’t touch a hot stove twice. We also learned the world is fraught with danger. It’s sadly true, pickpockets, snakes — and other perils — populate the earth. Thus, like the scalded cat, we should always hone our reactive instincts. It can begin by reading the newspaper.
For example, in a November 23, New York Times article titled “Wave of Debt Payments Facing U.S. Government,” writer Edmund L. Andrews wrote that our government is financing its more than trillion-dollar-a-year borrowing habit with ultra-low interest rates that may soon rise.
Treasury officials estimate approximately 36% of the government’s marketable debt, approximately $1.6 trillion, will quickly come due. Higher interest rates — which many predict — will apply to the government’s short-term loan rollovers, therefore increasing its borrowing costs.
Andrews predicted interest rates would escalate when the Federal Reserve Bank (the Fed) decides the nation’s financial crisis is over.
On November 24, 2009, Porter Stansberry, an investment advisor, said the bankruptcy of the U.S. is now certain. Like the Times, he said the U.S. Treasury will have to refinance [approximately] $2 trillion in short-term debt, within the next 12 months. This amount doesn’t include additional deficit spending, which may equal $1.5 trillion.
Stansberry questions if the Treasury can borrow the combined amount, $3.5 trillion — an amount equal to nearly 30% of the U.S. GDP.
CBS News recently attributed much of the present deficit and debt increase to, no surprise, government spending that has exceeded revenues. The news agency listed bailouts, stimulus spending, tax cuts and decreased tax revenues (due to rising unemployment) as the cause.
There’s also “discretionary” government spending, which seldom makes the news. For example, the government principally funds the Iraq and Afghanistan wars, and other special programs, through supplementary spending bills that reside outside the Federal Budget. Listed or not, such seldom-discussed spending affects our national debt. And taxes.
The Treasury’s short-term debt liability occurred because it tried to minimize its interest burden by borrowing for short durations and then "rolling over" the loans when they come due. However, with each rollover, the debt increases. “And, that’s when the trouble starts,” Stansberry said.
If the government can’t borrow the money, it will have to print more, which, historically, triggers inflation.

The decider
The Fed is an independent operation. Essentially, it’s a U.S. central bank, run by bankers, with limited government oversight.
The Fed sets interest rates upon what it — not the President or legislative houses — believes the economy needs. Its website says its systems are under public control, with countless checks and balances. It adds that Congress supervises its entire system but, by law, also gives the Fed autonomy to carry out its responsibilities “free of political pressure.”
Expectedly, and over time, a continuing debate between Congress and the Fed deliberates whether the Fed’s Inspector General’s Office or the Government Accountability Office (GAO), Congress’ entity, should audit the Fed.
Of course, the Fed is against the GAO idea.
The GAO audit idea has been revived because of the Fed’s unusual measures during the financial crisis. The New York Times said it had “moved into uncharted waters.” The Times also said, since September 2008, the Fed’s balance sheet had ballooned from approximately $900 billion to more than $2 trillion, because it had created new money, which it loaned through new programs.
Texas Congressman Ron Paul and Florida Congressman Alan Grayson have introduced a bill calling for such an audit. They said the nation’s economic decline and the Fed’s resulting actions have expanded its credit-market range and, also, significantly increased its transactions’ size.
In brief, their exasperation stems from the Fed’s ability to enter into agreements with foreign central banks and foreign governments, which involve hundreds of billions of dollars in currency swaps, while the GAO (read Congress) is, by present rules, prohibited from auditing — or even seeing — such agreements.
Paul and Grayson said such transactions have a significant effect on foreign policy, but without a link to the President or legislative bodies.
They also said the Fed now has a huge influence (and power) over financial markets worldwide and, also, with the U.S. financial system.
Further, they believe the Fed’s funding facilities and agreements with the Treasury (the executive agency responsible for promoting economic prosperity and ensuring the financial security of the U.S.) should be reviewed, especially those that allow the Treasury to funnel money to Wall Street without GAO or congressional oversight.

Higher interest
The country’s current low interest rates result from Fed’s interpretation of the country’s monetary needs for the present economic crisis. Theoretically, low interest creates capital, which builds business and creates jobs. Higher interest limits available money supplies and restricts buying.
In his November 12 article titled “Economists See Fed Raising Rates Near Midterm Elections,” Wall Street Journal writer Phil Izzo said a survey of economists see the Fed raising its rates in the third quarter of 2010.
Izzo said it might raise the rates prior to the 2010 elections, but won’t likely do it until unemployment figures recede.
An interest increase could hurt your borrowing (and buying) power.
As any newspaper reader can tell, the shortened money supply has caused political battles that idealistically regard the size, needs and responsibility of government.
It’s not news that our country is faced with serious financial problems, including even more devaluing of the dollar and continuing inflation. Like the scalded cat, we all want to avoid any more pain, but, unfortunately, the only solution appears to be higher interest (which should help strengthen the dollar) and higher taxes (to repay the debts).
The good news is the interest rates will remain down while, hopefully, the economy begins to recover, meaning it may be time to buy equipment. Further, although distasteful, inflation allows you to repay a loan with lesser value dollars.








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