Wednesday, December 26, 2012

Take your medicine

First of all, I note that the stock markets do not seem overly worried about this so-called fiscal cliff.

But additionally I will propose that the tax "increase" that will occur after the start of the year means that tax rates revert to where they were before G.W. Bush lowered them to stimulate the economy after 9/11. Has it worked? It sure doesn't seem that we have benefitted from this stimulus. That is all that it is. Stimulus. Tax cuts and deficit spending are stimulus. Stimulus being an artificial attempt to cause a rise in economic activity. And the tax cuts over the last decades resulted in a surge in government debt. We have been stimulating the economy for 30 years thru tax cuts and increased government spending. The large part of these rises in asset prices over these years is due to inflation. This is not wealth we have been creating. It is debt. The only ones to profit from this inflation has been those with the financial agility to stay ahead of the "trade". The rich got richer and the poor poorer. The money from the debt has been siphoned off and is sitting in the bond markets, looking for yield. That money is set to spill into the economy. That is what we have wanted to happen for a long time. Now the push is on to avoid a tax hike. So just as the money breaks loose taxes will be kept artificially low so the rich can get even richer in the coming inflation. This is how the game is always played. The public is always behind the curve. And the government is the public. It is our debt and our representatives in government. But we can't seem to see beyond next weeks paycheck and next weeks rent. To our detriment.

On the other side of the "cliff" is the prospect of cuts to government spending. Isn't this what one half of the debate wants?  And everyone who dreads the prospect of a drastic cut in government spending and believes that those cuts will slow down the economy is admitting that govt. spending stimulates the economy.

So who loses if we go over the cliff and stay over the cliff? Everybody? Taxes go up, government jobs decline. I thought we were worried about government debt?

I think that if we were able to bring ourselves to take this bitter medicine of fiscal austerity we would find ourselves in a much stronger position a couple years down the road after we digested this change in the debt situation.

The United States of America is hooked on easy money like a heroin addict is hooked on H. The prospect of a fix not forthcoming is fraught with anxiety.

Just thinking,

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