It's really not a cliff...
WE'RE ON the fiscal cliff now, writes Daily Reckoning founder Bill Bonner.
The falaise...the escarpment...
And we're holding on by our fingernails.
According to the popular press, if we lose our grip we will surely fall into the red-hot bowels of Hell.
Here's the latest from Reuters:
...optimists assumed that Congress and President Barack Obama would return after last week's elections with a plan – perhaps a temporary fix – to avoid the $600 billion in tax increases and budget cuts set to start in January that threaten to throw the economy back into recession.
But they didn't.
Some also assumed the election would give one party or the other an edge that could break the impasse over how to reduce the nation's deficit.
The non-partisan Congressional Budget Office reiterated last week that jumping off the cliff would boost the jobless rate to 9% from the current 7.9%.
The stock market has already registered its disquiet. The Dow lost more than 400 points on the two days following Obama's victory. On Friday, prices stopped falling... but there was no bounce. Investors are worried...
But you know our view. It ain't a fiscal cliff... it's a water slide. There will be some howls of fear and excitement going down the chute. And then, we all get soaked!
President Obama is on the case. According to the weekend news, he's fired the opening shot in what is supposed to be the 'Battle of the Fiscal Cliff'. He led off with a direct hit on the 1%...the rich. Heck, they can pay more taxes, says the President of all the Americans:
President Barack Obama said Friday that he would insist that tax increases on affluent Americans be part of any agreement to avoid a year-end fiscal crisis, setting up a possible confrontation with congressional Republicans who say they will oppose a rise in tax rates for the rich.
In his first remarks from the White House since his re-election, Obama made it clear that he believed his victory had validated his relentless campaign call for wealthier Americans to pay more and he expected Republicans to heed that message.
We have no argument against him. Sure, the rich CAN pay more tax. But according to the organization that we used to run (back in the '70s!) – the National Taxpayers Union – the top 1% of taxpayers already pay 36% of all federal taxes.
In other words, they pay 36 times more, proportionately, than they should. Do they get a greater benefit out of the SEC, the FDA, the CIA and the rest of the feds' scammy agencies? Do they get more security from the feds' drones? Do they get more food stamps? Or more unemployment comp? Or more Medicaid? No? Then why should they pay more?
Never mind. The top 1% of taxpayers pay an average tax of $343,927. Seems like more than enough for anybody.
But forget fairness. Just look at what happens when they pay more. These are people who already have satisfied their lifestyle ambitions, presumably. They don't need to buy a bigger car or a bigger house – they already have these things. They don't need the money for consumption purposes.
So, if the feds didn't take that $343,927 what would happen to it? It would of course be invested. It's capital, in other words. It is the stuff that you need if you're going to build a new factory...or a new app... or whatever.
Sometimes the wealthy make good investment decisions...sometimes they make bad decisions. Still, this capital – the savings of people who can afford to save – is what funds new jobs, new technology and new industries. It's what powers an economy towards real growth, with higher wages...and greater prosperity.
Instead, if the feds take the money, what happens to it? It is consumed. It pays for more drones. Or maybe to give more drugs to old people. Or, maybe it is used to hire more regulators and administrators who further gum-up the economy.
It would be better – in terms of final results – to let the economy go over the fiscal cliff. At least spending would be going in the right direction – down. But wait. Is that true? Nope...Even going over the fiscal cliff still leaves the feds spending more money...just not as much as they planned to spend. It still leaves the US with an ADDITIONAL $8.3trn in deficits over the next ten years. Some cliff!
As it is, Congress stands on the edge. Politicians are battling with each other. One group wants to tax the rich. The other wants to cut spending. They're fighting it out on the edge of the precipice...each side trying to force the other to pay...each trying to protect its own zombie clients and zombie voters...
What the hell. Give them all a shove!
Time to Buy Gold?...