Monday , 17 June 2024

Forget About the Fiscal Cliff! Increased Taxes & Austerity Measures Are Coming to the U.S. Regardless! Here's Why

Lorimer Wilson, editor of (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.

The article goes on to say, in part:

A belief that everything is going to be fine as soon as clarity on a deal takes place appears to be false hope…


  1. how weak the U.S. economy is right now, even after nearly $1 trillion of borrowed money was spent by the U.S. Government in order to provide economic stimulus and “shovel-ready” jobs and
  2. that the “Bush tax cuts” have continued to relieve businesses and consumers of higher tax rates.

These two factors have given a huge boost to the economy for the past couple of years, and without them, the economy would have been much worse. That is the big problem.

Deal or no deal on the Fiscal Cliff, taxes are going higher, and the level of U.S. Government spending is going to dwindle because the nearly $1 trillion Obama stimulus package is done, and current levels of spending on defense, entitlements and other areas are also not sustainable and are poised for budget cuts…

To get a sampling of what the combined impact of higher taxes and reduced government spending might feel like in 2013, all we have to do is take a look at Europe. Italy, Spain, Portugal and Greece have all raised taxes and cut government spending in the past couple of years, and the resulting effects have been quite devastating. It did not take long for unemployment to spike and economic weakness to set in as consumers and businesses also cut spending.

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We are already seeing signs of the above in the United States in advance of a potential Fiscal Cliff deal as:

  • corporations become more cautious, horde cash and reduce hiring,
  • consumers become more cautious as even companies, like McDonald’s, see same store sales drop for the first time in 9 years,
  • industrial companies, like Caterpillar, signal a slowdown as it recently reduced earnings guidance for the next couple of years.

The stock market is [also] starting to reflect the realities facing the United States:

  • the Standard & Poor’s 500 Index, which trades for about 14 times earnings, has begun to trade lower and currently is just slightly above the 200-day moving average. I expect it to break below that key support level in the coming weeks and months which is likely to spur additional selling pressure.
  • This country and its economy have been driven largely by borrowed money for many years, and that party is coming to an end. While the Obama stimulus plan and postponement of budget cuts has masked and delayed the real weakness in the economy for the past couple of years, that bandage is coming off soon.

Investors should consider getting very defensive in advance of 2013, when the effects of rising taxes and budget cuts will bear down hard on the economy…A recession and stock market correction in 2013 seems almost inescapable based on common sense.

The United States has a massive debt problem, which now stands at about $16 trillion and is expected to grow by about $1 trillion annually in Obama’s second term. The average American seems to be in the dark or in denial about this debt, just as many Spaniards and Greeks were a couple of years ago.

If we continue to vote in politicians who will promise to give us more and not take away what we have now, the debts will grow and eventually spiral out of control. We need an adult to tell us we can’t have any more candy, but we are not electing “adult leaders” that tell us what we don’t want to hear.

Until true reforms and solutions are found to cut the debt and bring solvency to essentially bankrupt programs like Social Security, Medicare, student loans, and even the post office, there is little chance for a robust and secular economic rebound in this country.

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Our economy has been held together by unsustainable government spending and Federal Reserve manipulation. If a true bottom had been reached in this economy, the Federal Reserve would not need to be intervening again and again. While some hopeful signs have emerged in housing and in other areas due to the stimulus and QE3 programs, that is likely to unravel in 2013. The real…economy (not the one that has been artificially propped up to win an election) and austerity is coming to America, whether it is induced by politicians or by the markets.

Excessive exposure to stocks makes little sense at this time. When, and if, true reforms are passed, and the debt is reduced to manageable and responsible levels, it will be time to get fully invested. However, raising cash and mostly limiting stock exposure to short-term trading opportunities (cash-rich companies that can continue to grow in a weak economy & buying stocks near the end of the year that have been depressed by tax-loss selling, and then selling them in a January rally when the end of tax selling and short covering allows the stocks to rebound.) is the smartest way to enter 2013.


Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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