{"id":33284,"date":"2012-11-02T15:37:06","date_gmt":"2012-11-02T19:37:06","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=33284"},"modified":"2012-11-02T15:37:06","modified_gmt":"2012-11-02T19:37:06","slug":"breaking-bad","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/11\/02\/breaking-bad\/","title":{"rendered":"Breaking Bad"},"content":{"rendered":"

A government with the policy to rob Peter to pay Paul can be assured of the support of Paul<\/em><\/p>\n

— George Bernard Shaw<\/p>\n

TV show Breaking Bad<\/em>, says Bill Gross, is an appropriate analogy to America\u2019s approaching fiscal cliff. The story is about a terminally ill high school chemistry teacher who turns to making crystal meth to save money for his family. Once started, it is hard to stop, as Gross reports:<\/p>\n

“Hooked on the temporary high of tax cuts and increased entitlements over the past several decades, the nation\u2019s capital is approaching the end of the line traveled by most addicts: Reform, or suffer the consequences.<\/em><\/p>\n

At first blush, the comparison to a meth head might seem a bit of a stretch. Despite approaching the edge of the fiscal cliff with a deficit equivalent to 8% of gross domestic product, the United States is still considered the \u201ccleanest dirty shirt\u201d in global financial markets. Whenever an authentic crisis (Lehman Brothers in 2008) or a minor aftershock occurs, investors buy U.S. Treasury bonds, the dollar rises and this country\u2019s reserve-currency status is reaffirmed. The United States still seems to be the first destination of global capital in search of safe (although historically low) prospective returns.<\/em><\/p>\n

Our fiscal chemistry lab, however, may be conducting more destructive experiments than investors acknowledge. Warning signs and distress flares are being sent out by more than the credit rating agencies. Recent annual reports issued by the International Monetary Fund<\/span><\/span><\/a>, the Bank for International Settlements and our own Congressional Budget Office speak to what economists term a fiscal gap — a deficit that must be closed if a country is to stabilize its debt as a percentage of GDP.<\/em><\/p>\n

It is not necessary, these reports say, to be totally drug-free; a small deficit, after all, has been a trademark of the United States for decades. But a fiscal gap that exceeds minor levels — 2-3% of GDP — must be closed, or a country\u2019s financial foundation and, ultimately, its economy may unravel. Its growth rate will almost surely slow down and fail to lower high levels of unemployment.<\/em><\/p>\n

The United States, it turns out, is a fiscal-gap serial offender by the standards of all three of these respected independent authorities, approximating an average gap of 8% of GDP<\/span><\/span><\/a>. Compared with Germany and Canada, the United States is addicted to deficits and committed to future spending far beyond reasonable comparison. In fact, the company we keep includes Greece, Spain, Britain and Japan — a rogues\u2019 gallery of debtor nations that have abused deficit financing for decades<\/em><\/p>\n

Following Orders<\/strong><\/h3>\n

Wall Street was closed yesterday on account of the big storm. Here in Baltimore, the howling wind and sheets of rain produced little real damage. Still, public officials used the opportunity to train the population to follow orders.<\/p>\n

The streets were clear this morning. But the authorities told residents not to venture out. Only a few defied the order. Docility is encouraged; initiative is punished.<\/p>\n

That is what happens when a society reaches an advanced stage of decadence. It pays to know someone\u2026 have an inside angle\u2026 and get in on some scam.<\/p>\n

And now, with the election<\/span><\/span><\/a> a week away\u2026 and with the storm damage on every TV\u2026 many people are pleased to know the Barack Obama, the President of All the Americans, has magnanimously offered to pick up the tab.<\/p>\n

Yes, it\u2019s a national emergency. We will all pay for it\u2026<\/p>\n

Get Ready to Get Soaked<\/strong><\/h3>\n

But how? Already, the feds borrow 50 cents for every dollar they collect in taxes. How can they do more?<\/p>\n

But don\u2019t worry. We\u2019re headed for \u201cthe cliff.\u201d The law, as it stands, says that spending will automatically be cut on Jan. 1. Trouble is, it\u2019s not nearly enough. Gross continues:<\/p>\n

The CBO\u2019s fiscal gap of nearly 8%, for instance, suggests we need to raise taxes or cut spending by an amount equal to $1.6 trillion per year. Yet the expiration of the Bush tax cuts and other provisions included in the congressional supercommittee\u2019s \u201cgrand bargain\u201d was a $4 trillion battle plan over 10 years, or $400 billion per year.<\/em><\/p>\n

A little short. And most likely, it will get even shorter, after the polls in Washington have their say.<\/p>\n

To repeat: The fiscal cliff is turning into a fiscal waterslide. It will be exciting\u2026 and we\u2019ll all get soaked.<\/p>\n

But at least the waterslide takes us in the right direction. Sort of. The Democrats don\u2019t like it because it cuts out some of the zombies from social spending. The conservatives don\u2019t like it because it \u201csequesters\u201d the money that would have gone to the military zombies.<\/p>\n

Our old friend Grover Norquist explains that sequestration isn\u2019t so bad. From Politico:<\/p>\n

\u201cSequestration is not the worst thing,\u201d said Grover Norquist, the influential head of Americans for Tax Reform. \u201cThere are better ways to reduce government spending,\u201d he told Politico, \u201cbut Congress didn\u2019t get there\u2026 We\u2019ve got to get away from this idea that, if the defense sequester got put off, or cut in half, or redirected, then somehow they\u2019ve dodged a bullet and we don\u2019t have to do anything on defense.\u201d<\/em><\/p>\n

\u201cSequestration isn\u2019t ideal, but on the whole, sequestration is fine\u2026 I think it\u2019s been a relatively positive exercise [because] it forces people to address defense spending,\u201d said Andrew Moylan, the outreach director for the conservative R Street organization. \u201cWe\u2019ve learned Congress won\u2019t reduce spending unless it is forced.\u201d<\/em><\/p>\n

\u201cThe automatic sequester, while not perfect for a number of reasons, is going to be a lot better than any sort of deal they come up with in the lame duck,\u201d argued David Williams of the Taxpayers Protection Alliance.<\/em><\/p>\n

As for Norquist, he said that even if Republicans could control all the levers of government, they shouldn\u2019t drop the defense cuts to zero.<\/em><\/p>\n

\u201cWe have to dramatically reduce the cost of defense, whether there is a sequester or not. Maybe the sequester focuses their attention, and to the extent it does, that\u2019s a helpful thing,\u201d he said. \u201cWe need to look at defense the way we look at welfare and education — just because somebody calls something by a good name doesn\u2019t mean that every dollar is spent wisely or constructively.\u201d<\/em><\/p>\n

P.S.<\/strong> Here’s an Unusual Play that Goes Up as America Leaps off the Fiscal Cliff… There’s one unusual position that will not only protect you from America’s swirling debt storm — but it also tends to shoot up in price during economic calamities.<\/p>\n

It’s not gold…but it is completely legal, simple and ethical. You can’t control the gov’t’s out of control spending and money printing. But you can do this to insulate yourself from their meddling and mistakes…<\/span><\/span><\/a><\/strong><\/p>\n

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