Pinnacle Activity Ticker
Economics 101: January 2013, Game Over America
Pinnacle Digest writes: Media has been focused on a new "fiscal cliff" from which the United States will fall in January 2013. The simultaneous implementation of the $2 trillion in automatic spending cuts (spread over 10 years) agreed to in last year's debt ceiling vote, and the expiration of the Bush era tax cuts, are the two main issues perpetuating fear. The Fed's 'Operation Twist' is also set to conclude by January 2013, but Schiff is so convinced Bernanke will have another fresh round of stimulus ready to go, he doesn't even mention it!
The combination of the $2 trillion in automatic spending cuts, although spread out over ten years, and the end of Bush era tax cuts, is feared to be enough to drive the US back into recession.
Schiff explains that this fear is wrongly derived and comes from the false premise that government spending generates economic growth. Investors and citizens alike are forgetting that the government can only get money from taxing, borrowing, or printing. Schiff reminds us that money taxed or borrowed is taken out of the private sector, and hurts US businesses, where it could have been used more productively. Printed money merely creates inflation.
The 'fiscal cliff'' no one is talking about is the one the United States will face when interest rates inevitably rise. Schiff argues this is the real 'fiscal cliff' approaching America and the one no one is talking about. He states that, "If the sheer enormity of the red ink were to finally worry our creditors, five per cent interest rates could quickly rise to ten."
Read this article...