“If I had a world of my own,” declared Alice, Lewis Carroll’s red pill-popping protagonist while wandering around her author’s Wonderland, “everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?”
What’s going on, Fellow Reckoner? What’s happening…now that we’re through the looking glass? Stocks dawdle. Gold drags its chain. And the whole economy — to the extent that such a thing even exists — marches headlong off a cliff. That’s what we’re told. Welcome to post-election 2012…where nothing is quite as it seems.
Here’s Bloomberg News, describing “how a game of fiscal chicken could turn into a cliff dive.”
“The subtext of the fiscal cliff battle between Democrats and Republicans is a dispute between going fast and going slow.
“Democrats want to capitalize on the political momentum from President Barack Obama’s Nov. 6 re-election and reach an agreement that moves policy in their direction with higher taxes on top earners. Republicans want to avert the $607 billion cliff while extending the current lower tax rates, yet they have a good reason for waiting to endorse a deal. Every day puts the 2012 election farther away and brings the country closer to reaching the $16.4 trillion debt limit, an action-forcing event that can give Republicans a political edge.”
We’re all seeing and hearing a lot about the impending “fiscal cliff moment,” when a combination of tax break expirations and government spending cuts will combine to knock the US economy back into recession…or worse. Where will the cuts come from? Social programs and…gulp!…the nation’s euphemistically named “defence” budget.
Of course, the country could do without these cancerous growths anyway. They feed on the labors of the productive class at home and foment distrust and hatred for the US in countries around the world. “Deep cuts,” they say? Ha! What’s really needed is something closer to a bilateral amputation.
In any case, the papers assure us the lawmakers in the nation’s Capitol are hard at work, hammering out deals of vital national importance, racing against the clock like a foaming warren of Ritalin-fed White Rabbits.
And all the while… Tick tock… Tick tock… Tick tock…
For how long can this go on? Just how much track is left before we’re over the “fiscal cliff”?
In truth, the government does have a debt limit…but it’s not the self-imposed “ceiling” that inspires in politicking Washington stiffs no ends of affected indignation. According to the Congressional Research Service, the debt ceiling has been raised 74 times since March of 1962. And it will, after much posturing and hawing and hemming, no doubt, be raised once again.
The entire discussion of whether or not to extend the limit of one’s own credit card is, in and of itself, absurd. A distraction at best. “Gee…will we vote to allow ourselves to spend more…or not?”
There is only one vote that really counts in the debt ceiling debate: the vote of foreign creditors. The debt will ultimately come due, in other words, when the kindness of strangers expires.
“The only thing we know for certain about our looming fate,” observed Eric Fry in this space during the furor of the Obamney-Robama distraction, “is that we cannot afford it.”
The destiny of the US economy rests “not in the hands of a Barack Obama or a Mitt Romney,” continued Fry, “it rests in the hands of our creditors — guys like Zhou Xiaochuan, Governor of the People’s Bank of China, Masaaki Shirakawa, Governor of the Bank of Japan and Abdullah bin Fahd al-Mubarak, Governor of the Saudi Arabian Monetary Authority.”
Americans can’t count on their own politicians to do the right thing. That’s certainly true. But in the end, they won’t have to. Eventually, their government’s hand will be forced, the blue pills will suddenly wear off…and what is, won’t be any longer.
for The Daily Reckoning
Joel Bowman is a contributor to The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.
I always remember that quote though, “the market can stay irrational longer than you can stay solvent.” It seems like it could all fall apart any minute, but the Federal government has looked that way for years. I guess we just have to wait and see.
"There has been an issue that has preoccupied my mind for a long time," writes Dr. Marc Faber. "In economics, it is generally accepted that if the quantity of money and credit is increased, prices will rise… However, since economics is so complex… I question whether the expansion of central banks' balance sheets and policies of zero interest rates could have a deflationary impact…" The good doctor wrestles with the question, in today's essay...
The Biotech iShares ETF is up 23% since the Oct. 15th bottom. No, that is not a typo. Biotechs have torched the S&P over the past two months--more than doubling the returns of the big index. And biotechs as a group are up more than 38% year-to-date. In fact, since we first highlighted the June comeback, the Biotech iShares have gone nowhere but up.
The oil market has been under siege for six months. From service providers to producers this downturn has been painful. Of course, we’ve known all along that oil prices were a little toppy over the summer. In fact, when asked just how low oil prices could go I usually answered with a simple “lower than you’d expect…”
Our forecast that Cuba would be open and integrated within 5-10 years is on track after yesterday's big announcement. Ahead of schedule, even. Click here to see how some investors have profited and what the island's likely future is...
The opportunity to sell and install LEDs is enormous. We’re talking about over a billion lighting fixtures. And the areas with the largest potential -- like parking lots -- have barely begun to change. Banker to the presidents Chris Mayer says you could triple your money in this new tech trend. Here's what you need to know.
It's a theme we've shared with you since April. And it's only gotten worse. The gaming industry has come under all sorts of pressure--a situation I first noticed in the charts. The powerful, multi-year uptrends started showing cracks. And it wasn't long before those cracks turned into gaping holes you could drive a friggin' truck through. That's where things stand today.