Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
Stocks Bear Market Formation Revealed - 30th July 14
We Just Found “The Future” - 30th July 14
What the “Steak Bandit” Says About Asset Values - 30th July 14
Designer War By Default - Seven Types of Elite Madness - 30th July 14
Death of the U.S. Dollar? Gold an Inflation Hedge? Really? - 29th July 14
We’re Ready to Profit in the Coming Gold Price Correction—Are You? - 29th July 14
Their Economy Will Collapse, Including Ours - 29th July 14
Silver Prices – Megaphone Patterns - 29th July 14
Real U.S. Interest Rates - Fed Exit a Blue Pill? - 29th July 14
Why Israel Should NOT Exist, Just Like Any Other Rogue State - 29th July 14
Gold Still Looking Good - 29th July 14
Silver Price Set To Star - 29th July 14
Our Population Growth Totalitarian Future - 29th July 14
World War 1 Cause and Consequences - The Planned Destruction of Christendom - 29th July 14
Will Crashing Commodities Crash the Stock Market? - 29th July 14
Ukraine MH17 - Washington Thinks Americans Are Fools - 29th July 14
Stock Market Bubble Warning - 29th July 14
Gold Price and U.S. Dollar’s July Rally - 28th July 14
Second Quarter Corporate Earnings: Marching Toward a Strong Economic Recovery - 28th July 14
Time to Put a New Economic Tool in the Box - 28th July 14
Mossad in Gaza, Ukraine and the Cult Of The All-Powerful Elite - 28th July 14
Elliott Wave Gold Price Projection Since 1970 - 28th July 14
Investors Remain Uncertain As Stock Fluctuate Near Long-Term Highs - Will The Uptrend Extend? - 28th July 14
The Mass Psychology Of Decline - 28th July 14
Will the US Destroy the World? - Don’t Expect to Live Much Longer - 28th July 14
GDM and GDXJ Gold Stocks In-depth Look - 28th July 14
Stock Market One FINAL High? - 28th July 14
What It Means - Paradigm Collapse And Culture Crisis - 27th July 14
Wall Street Shadow Banking: You Can’t Taper a Ponzi Scheme: “Time to Reboot” - 27th July 14
6 Tips for Picking Winning Gold Mining Stocks - 27th July 14
Israel's War on Children, Exterminating the Palestinians Future - 27th July 14
Guilt By Insinuation - How American Propaganda Works - 26th July 14
Surprise Nuclear Attack On Russia To Liberate Ukraine - 26th July 14
Use "Magic" Of Gold/Silver Ratio To Greatly Increase Your Physical Holdings - 26th July 14
Derivatives Market Species Origins - Abuse, Props and Risks - 26th July 14
Stock Market Manipulation and Technical Analysis - 26th July 14
China’s Stock Market Finally Looks Like A Buy - 26th July 14
Ed Milliband Fears Israel Jewish Fundamentalist Gaza War Massacres Backlash - 26th July 14
The Big Energy = Power Battle Is Coming - 25th July 14
USrael - Zionists in Control of America's Goyim Brainwashed Second Coming Slaves - 25th July 14
More Weakness Ahead for Gold Miners - 25th July 14
Gold Price Strong Season Starts - 25th July 14
Geopolitics and Markets Red Flags Raised by the Fed and the BIS on Risk-taking - 25th July 14
Gold Lockdown Until Options Expiry - New Singapore Gold Contract Threatens Price Manipulation - 25th July 14
The Bond Markets, Black Swans, and the Tiny Spirit of Santo - 25th July 14
No Road Map For Avoiding The Future - 25th July 14
Israeli War Machine Concentrating Women and Children into UN Schools Before Killing Them - C4News - 25th July 14
Israeli Government Paying Jewish Fundamentalist Students to Post Facebook Gaza War Propaganda - 25th July 14
Why the Stock Market Is Heading For A Fall - This Time Is Not Different - 25th July 14
An Economic “Nuclear Strike” on Moscow, A “War of Degrees” - 25th July 14
BBC, Western Media Working for Israeli Agenda of Perpetual War to Steal Arab Land - 25th July 14
Ukraine: What To Do When Economic Growth Is Gone - 24th July 14
Stock Market Clear and Present Danger Zone - 24th July 14
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Congress Avoids the Fiscal Cliff by Selling Us Down the River

Politics / US Politics Jan 04, 2013 - 02:22 AM GMT

By: Peter_Schiff

Politics

With the possible exception of the New York Times' editorial board (and the cast of The Jersey Shore), everyone on the planet understood that the United States Government needs to cut spending, increase taxes, or both. Instead, after months of political posturing and hand wringing, the Federal Government has just delivered the exact opposite, a deal that increases spending and decreases taxes. The move lays bare the emptiness of budget legislation, which can be dismantled far easier than it can be constructed.


One question that should be now asked is whether Moody's Research will finally join S&P in downgrading the Treasury debt of the United States. After the Budget Control Act of 2011 (which resulted from the Debt Ceiling drama) Moody's extended its Aaa rating, saying in an August 8 statement:

"...last week's Budget Control Act was positive for the credit of the United States.... We expect the economic recovery will continue and additional budget deficit reduction initiatives will be put in place by 2013. The political parties now appear to share similar deficit reduction objectives."

Now that Moody's has been proven wrong, and the straight jacket that Congress designed for itself has been shown to be illusory (as I always claimed it was), will the rating agency revisit its decision and downgrade the United States? Given the political backlash that greeted S&P's downgrade in 2011, I doubt that such a move is forthcoming.

For now, the real budget negotiations have been supposedly pushed later into 2013, when the debt ceiling will be confronted anew. But who can really expect anything of substance? The latest deal emerged from a Congress that is nearly two years removed from the next election. As a result, Congressmen were as insulated from political pressures as they could ever expect to be. Nevertheless, they still chose political expediency over sound policy. If Congressional leadership (an oxymoron that should join the ranks of "jumbo shrimp" and "definite maybe") could not put the national interest in front of political interests now, why would anyone expect them to do so later? They will continue to ignore our fiscal problems until a currency crisis forces their hand. I expect deficits to approach $2 trillion annually before Obama leaves office. Unfortunately, at that point the solutions would be far more draconian than anything economists and politicians are currently considering.

In light of the extensions of the popular middle class tax rates, the loudly trumpeted tax increases on those individuals making more than $400,000 (and couples making more than $450,000) will not be enough to translate into higher tax revenues. Instead they will result in perhaps $60 billion per year in new revenue to the Federal government that will be more than offset by the new spending announced in the agreement. However, the increases will result in many individuals in high tax states like California and New York paying more than 50% of their income in taxes.

While many economists are cautioning that higher taxes on the wealthy will take a bite out of spending, in my opinion it is more likely to result in lower business investment, which is far more detrimental to the economy. When faced with diminishing discretionary income, most rich people would sooner cut back on savings and investment than they would on health care, education, home improvements and vacations.

But it should be clear that the rate increases are just the opening crescendo in a symphony of tax hikes on the nation's entrepreneurial class. President Obama has recently stated that he will consider needed cuts in spending and entitlement programs only if they are coupled with additional tax increases on the wealthy. In other words, as far as the President is concerned, the hikes included in the budget agreement that was just passed didn't count for anything.

It cannot, or should not, be denied that Washington's latest fig leaf will have a major impact on the markets. The New Year's "relief rally" is understandable given the clear implications that the government will simply print its way out of trouble for as long as it can. In the past, fiscal profligacy was held in check by investors who would sell bonds and push interest rates higher whenever it appeared that the government was not serious about national solvency. But with the Federal Reserve now buying the vast majority of U.S. government debt, no such roadblock exists. With monetary and fiscal stimulus pushing up stock and bond prices, and no immediate fear of a rally-killing spike in interest rates, there is no reason to stay on the sidelines. Markets are now driven by stimulus, not fundamentals, and the stimulus is firmly at the wheel. (For more on this - see the article in the January edition of Euro Pacific's Global Investment Newsletter). But it is important to look at the nature of the rally. We would bring investors' attention to the increase in gold and oil and rally against the dollar of every major currency except the Japanese yen

(which is being deliberately debased by a newly elected government). Our new Newsletter edition also includes an analysis of some of the more promising overseas markets.

But by taking the nominal risk out of investing, the government is insuring that the risks to the U.S. economy will grow exponentially. We are now - and will remain - a debt-fueled economy for as long as the rest of the world permits this to continue. But this is no way to create real, sustainable economic growth. On the contrary, it will simply permit the growth of government, the depletion of economic vitality, and ultimately the collapse of the U.S. dollar.

In the meantime, President Obama and Congressional leaders will take credit for a tax cut that is in reality a huge tax increase in disguise. Government spending is the real source of taxpayers' pain and it is only a matter of time before the bill comes due in the form of inflation. See our Newsletter for fresh analysis as to why inflation may already be higher than you think. Because the deficits will grow even larger, more purchasing power will be lost in this manner than would have been lost had all the Bush tax cuts been allowed to expire. In addition, though entitlements cuts were taken off the table, the real value of benefits could be slashed, as cost of living adjustments fail to keep up with skyrocketing consumer prices. That's a Fiscal Cliff that will not be so easy to avoid.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, John Browne, and other Euro Pacific commentators delivered to your inbox every Monday!

And be sure to order a copy of Peter Schiff's NY Times Best Seller, The Real Crash: America's Coming Bankruptcy - How to Save Yourself and Your Country

Euro Pacific Capital
http://www.europac.net/

Peter Schiff, CEO of Euro Pacific Capital and host of the nationally syndicated Peter Schiff Show, broadcasting live from 10am to noon ET every weekday, and streaming at www.schiffradio.com. Please feel free to excerpt or repost with the proper attribution and all links included. 

Peter Schiff Archive

© 2005-2014 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

Free Report - Financial Markets 2014