With Congress having passed legislation to avoid going headlong over the fiscal cliff, what lies ahead for our nation's fiscal situation and our economy?
The show we saw play out in Washington over the last few months and culminating in pathetically dramatic fashion late last evening strikes me as little more than a preliminary to the main performance and much more substantive issues that are scheduled for late February and into March. What topics will cross our headlines then?
Dealing with the debt ceiling and mandatory spending cuts, aka, sequestration. Collectively, these topics are not really part of a fiscal cliff but rather a fiscal crisis.
Both political parties will clearly try to score political points from the legislation passed last evening. Folks, while the issues addressed and legislation passed last evening will have a meaningful impact on many individuals and families in our nation, those issues and the outcome do not meaningfully move the needle in terms of revenue generation and deficit reduction. Recall that at the current path, we are moving rapidly to a fiscal deficit of $20 trillion which equates to more than 120% of our annual GDP. What happens then? More and more of every dollar we borrow goes simply to pay the interest on our debt. How are we to address this mountainous issue?
1. Increase taxes even further? At the peril of crushing our economy in the process.
2. Spending cuts? We will see what type of leadership and character Washington can muster to address this main event over the next few months.
2a. Entitlement reform? Folks, this is where it really begins and ends. All other topics may be important to select industries and individuals, but until we address these entitlement programs in a truly meaningful fashion, we are kidding ourselves if we think we can and will meaningfully impact our deficit. Let's put it on the table right now. The Ponzi-style financing employed to fund these programs currently does not and will not work for all that much longer. We MUST employ rigorous means testing along with an extension of when benefits kick in. These tools should be drawn up now so as to be implemented in a meaningful fashion in the not too distant future. If we do not enact these reforms, there is one other way to address our deficit.
3. Inflation. Trying to literally inflate our way out of our deficit by devaluing our currency is a pathetic path that Washington has already been navigating for far too long. Choosing to lessen the quality of life and diminish the American dream for our children and children's children sickens me. Yet, I firmly believe the Federal Reserve, those in the US Treasury, and the pols on both sides of the political aisle are very comfortable taking this path because it comes without bold headlines and seemingly immediate consequences. Make no mistake, the inflationary path is little more than a cancerous serum injected into our system. This serum is also filled with a meaningful dose of cronyism if not corruption. Only the favored few benefit from the cronyism and corruption. The massive majority pays the price and suffers the pain.
The American public should not be so easily duped although we have been to date.
Happy New Year to all those who like to frequent Sense on Cents.
I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.
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