Best of the Week
Most Popular
1.The Brexit War! EU Fearing Collapse Set to Stoke Scottish Independence Proxy War - Nadeem_Walayat
2.London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - Nadeem_Walayat
3.The BrExit War, Game Theory Strategy for What UK Should Do to Win - Nadeem_Walayat
4.Goldman Sachs Backing A Copper Boom In 2017 - OilPrice_Com
5.Trump to Fire 50 US Cruise Missiles To Erase Syrian Chemical Attack Air Base, China Next? - Nadeem_Walayat
6.US Stock Market Consolidation Time - Rambus_Chartology
7.Stock Market Investors Stupid is as Stupid Goes - James_Quinn
8.Gold in Fed Interest Rate Hike Cycles- Zeal_LLC
9.The BrExit War - Britain Intelligence Super Power Covert War With the EU - Nadeem_Walayat
10.Marc Faber: Euro to Strengthen, Dollar to Weaken, Gold and Emerging Markets to Outperform - MoneyMetals
Last 7 days
Bifurcated US Stock Market - 29th Apr 17
Damn the Deficits, Huge Trump Tax Cuts Ahead! - 29th Apr 17
Gold Hostage to Stocks - 29th Apr 17
Warren Buffett Hates Gold… But Here’s Five Reasons You Need To Own It - 29th Apr 17
Stock Market Sentiment, Re-Fueled Along the Way - 28th Apr 17
Calling out the Central Bankers - 28th Apr 17
Fed's Third Inetrest Rate Hike and Gold - 28th Apr 17
USD/CAD - Invalidation of Breakout or Further Rally? - 28th Apr 17
What Happened to the Stock Market Crash Experts Were Predicting - 28th Apr 17
Earth Overshoot Day - Human Population Growth - 28th Apr 17
Misunderstanding GDXJ: Why It’s Actually Great News For Junior Miners - 28th Apr 17
What Makes Bitcoin Casinos So Remarkable? - 28th Apr 17
Financial Markets Improvised Explosives - 27th Apr 17
More Stock Market Short-Term Uncertainty As Stocks Get Close To Record High - 27th Apr 17
Elliott Wave Theory: Is Elliott’s Theory Enough? - 27th Apr 17
Billionaire Investor Paul Tudor Jones Says Stock Market Valuation Is “Terrifying” And He Is Right - 26th Apr 17
The Great BrExit Divides - Britain, USA and France - 26th Apr 17
10 Facts That Show Our Taxes Are Worse Than You Thought - 26th Apr 17
What Trump’s Next 100 Days Will Look Like - 26th Apr 17
G20: SURPASSING THE 2nd GLOBAL STEEL CRISIS - 26th Apr 17
What A War With North Korea Would Look Like - 25th Apr 17
Pensions Are On The Way Out But Retirement Funds Are Not Working Either - 25th Apr 17
Frank Holmes : Gold Could Hit $1,500 in 2017 Amid Imbalances & Weak Supply - 25th Apr 17
3 Reasons Why “Spring Forward, Fall Back” Also Applies To Gold - 25th Apr 17
SPX may be Aiming at the Cycle Top Resistance - 25th Apr 17
Walmart Stock Extending Higher - Elliott Wave Trend Forecast - 25th Apr 17
Google Panics and KILLS YouTube to Appease Mainstream Media and Corporate Advertisers - 25th Apr 17
Gold Price Is 1% Shy of Ripping Higher - 25th Apr 17
Exchange-Traded Funds Make Decisions Easy - 25th Apr 17
Trump Is Among The Institutionally Weakest National Leaders In The World - 25th Apr 17
3 Maps That Explain the Geopolitics of Nuclear Weapons - 25th Apr 17
Risk on Stock Market French Election Euphoria - 24th Apr 17
Fear Campaign Against Americans Continues Nuclear Attack Drills in New York City - 24th Apr 17
Is the Stock Market Bounce Over? - 24th Apr 17
This Could Be One Of the Biggest Winners Of The Electric Car Boom - 24th Apr 17
Le Pen Shifts Political Landscape- The Rise of New French Gaullism  - 24th Apr 17
IMF Says Austerity Is Over - Surplus or Stimulus - 24th Apr 17
EURUSD at a Critical Point in Wave Structure - 23rd Apr 17
Stock Market Grand Super Cycle Overview While SPX Correction Continues - 23rd Apr 17
Robert Prechter Talks About Elliott Waves and His New Book - 23rd Apr 17
Le Pen, Melenchon French Election Stock, Bond and Euro Markets Crash - 22nd Apr 17
Why You Are Not An Investor - 22nd Apr 17
Gold Price Upleg Momentum Building - 22nd Apr 17
Why Now Gold and Silver Precious Metals? - 22nd Apr 17
4 Maps That Signal Central Asia Is at Risk of War - 22nd Apr 17
5 Key Steps For A Comfortable Retirement From Former Wall Street Trader - 22nd Apr 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

Why Governments Always Punt on Economic Austerity

Economics / Economic Austerity Nov 15, 2012 - 09:53 AM GMT

By: Michael_Pento

Economics The simple reason why governments never freely decide on fiscal responsibility is because fixing their well-entrenched problems of over borrowing and spending means that their already fragile economies would be temporarily thrown over a cliff.


America faces its own version of austerity come January. Tax hikes and spending cuts would cut $100’s of billions off of the fiscal 2013 deficit, sending the already-anemic U.S. economy into a deflationary recession.  With nearly $600 billion less debt for the Fed to monetize, the growth rate of the money supply would contract, which would send asset prices and most markets tumbling.  And we also will bump our heads once again on the debt ceiling come January as well. If Washington doesn’t agree to raise the debt limit there will be fiscal austerity amounting to nearly $1 trillion next year! Not to worry though, the U.S. has raised the debt limit 74 times in less than 50 years. Old habits die hard and there’s no reason to believe D.C. will achieve fiscal sanity this time.

But the truth is that nothing of any substance will be done in regards to the deficit and debt because if politicians, the MSM and Wall Street really wanted to cut the amount of red ink they wouldn’t be so alarmed about having the Sequestration go into effect. After all, the Fiscal Cliff is simply a combination of spending cuts and tax hikes that would dramatically lessen the rate of debt accumulation; and isn’t that what we all supposedly want anyway? Of course, republicans prefer to raise revenues by lowering rates and eliminating loopholes; but the key point is they both still want to increase government’s bounty—they just disagree on how to do it.

There absolutely would not be so much hysteria over the Fiscal Cliff if both parties actually held the belief that debt and deficits really matter. Therefore, it seems clear that austerity is something they can all agree on…only if it isn’t happening under their watch. However, data released this week shows how dire the debt situation really is. The U.S. budget deficit for October—the first month of the new fiscal year--expanded by 22%, to $120 billion from a $98.5 billion shortfall in the year ago period.

And you can forget about a grand bargain getting done as well. There is no way the Senate and President Obama will agree on a long term deal to slash entitlements if House republicans can only assent on cutting tax rates and eliminating a few deductions on “the rich”. They will instead punt on Austerity and all agree on staying drunk in order to delay the eventual hangover. It is blatantly and egregiously duplicitous for our government to claim that budgetary deficits and debt must soon be addressed, yet at the very same time panic about adopting measures that would address those imbalances now.

Even though austerity is the only real solution for our proclivity to over borrow and over spend, that scenario is untenable for the politicians. That is why fiscal austerity will be punted on and we will once again turn to the Fed to combat the anemic economy with unprecedented central bank intervention.

My guess is that there will be no significant reduction in borrowing and spending anywhere in the developed world in 2013. Once the U.S. officially backs away from the Cliff, commodity prices (especially gold) will soar. There will even be a huge relief rally in global markets due to the fact that governments have once again passed on austerity. Unfortunately, all that will be accomplished is to vastly increase the final collapse of fiat money and the debt that it supports.

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.
       

© 2012 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife