Managing and lowering the economic ‘boom’

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Dear John: There will be a price to pay for this false economic boom. 

I am not a fan of communism or even socialism, but Marx was spot-on with his concept of a crisis of overaccumulation. That’s exactly where we are and this tax cut only digs a deeper hole. J.W. 

Dear J.W.: First off, there is no boom — at least not yet.

As I’ve said before, there have been times in recent years when we’ve had one or two quarters of good economic expansion, and then we hit a wall.

Let’s wait a little longer before we call what we now have a “boom.” And the 4 percent annual growth we are now enjoying will really never amount to a boom.

And we got here the easy way: Give people money and tell them to go out and spend it. Give them lower taxes, and they will — as you and Karl Marx say — accumulate things.

There are several problems with tax cuts. One is that people don’t always do what you expect them to do. Give people money, and they might actually save some. Or pay off things they already bought.

At some point, people may decide they’ve accumulated enough.

And companies may not use their tax breaks to expand businesses.

They may — as some have — decide to repurchase shares to make their executives and shareholders richer.

The hole you are talking about is the US debt level, which is nearly $21.5 trillion. And that’s with interest rates being extraordinarily low for more than a decade.

Once the government has to start paying normal rates to borrow money, the debt figure is going to climb even more rapidly.

The hope, of course, is that revenue from economic expansion grows faster than the debt. From a politician’s point of view, the hope is that I get out of office before people find out that this isn’t happening.

Dear John: My offer is no doubt not what C.B. was looking for, but I would gladly pay him $20 an hour to work on my apartment two or three hours a week. 

Please give him my phone number if he is interested. Thanks. D.R. 

Dear D.R.: So, you are proposing that I ask a male reader — C.B. — to work on the apartment of a female reader — you — for up to three hours a week without you telling me the specific work involved?

This isn’t that type of Dear John column.

Let me refresh my readers’ memories. C.B. chastised me for thinking nobody would take a $20-an-hour job taking stuff to the dump. That wasn’t my conclusion. It was the observation of another reader in Connecticut who couldn’t find help for yard work.

Sorry, I’m not giving out a stranger’s phone number to another stranger. Maybe I watch too many true-crime stories.

Dear John: I am a Registered Investment Advisor, and we have a dedicated cash meeting each morning to determine which clients’ balances can be moved typically to one-month bills. We got paid 1.98 percent (annual rate) on Sept. 7. 

Our business is at Schwab, and in fairness to it, purchasing certificates of deposits or Treasurys is a click or two away. 

Keep up the good work on educating the public, and let them know that on each $1,000, they can earn either $5 or $19.80 a year. Either way, someone gets the higher number. We prefer it goes to the client. D.R. 

Dear D.R.: Yes, it should go to your clients and not to the brokerage firm.

In the item you are referring to, a reader complained about Schwab and the brokerage firm defended its practices.

And, as I don’t have to tell you, 1.98 percent is still a lousy rate. And there is a risk to clients’ principal if they buy government securities at a time when interest rates are rising. The value of their investment could decline. And there are many people — me included — who think the bond market is a much bigger bubble than the stock market.

After all, the Federal Reserve has been purposely keeping interest rates exceptionally low for 10 years. How? It has rigged the bond market and, by extension, stocks. The stock bubble has a much better chance of surviving than bonds’.

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