Hi everybody,
Yesterday I went on a bit of a rant about the fiscal cliff, how we got there, and what’s going to happen next. Well… I wasn’t quite done! So I’m going to get back into it, but this time, I’m going to leave you with more than my analysis of the situation. I’m going to give you a clear way on how to survive this fiscal cliff business, and even profit from it. Now, let’s assume that the president, the House, and the Senate come together with this plan I just outlined in my previous post, and we are able to reduce the deficit by $300 billion.
(Side note: the annual deficit for the past four years has been running $1 trillion a year.)
Where do you think the projection for 2013 is? It is $1 trillion. If they agree to this compromise, instead of the deficit in 2013 being $1 trillion, it will be $700 billion. Here is our current deficit, so that means it is going to go up in 2013 another $700 billion after all of our great politicians have declared victory. At the end of 2013, it is going to be $16.7 trillion.
If the republicans cave and the democrats get their way, the spending will not go down at all; it will actually go up. This deficit would then be even higher.
Either way, here is our year-end deficit for 2013. How about 2014? It will go up another trillion. Whatever they come up with here will only apply to this year with some vague projection for future years. They are good at making a vague projection and then they never make good on it. I would say it is a pretty good bet that the deficit is going to go up another trillion.
You have to ask yourself, “What does all this mean—a trillion dollars?” A lot of people cannot even relate to that and I do not blame them. It is certainly a bigger number than I am used to.
The GDP of the United States (the Gross Domestic Product, the sum total of all the economic activity in the United States) is in this same area; it is around $16 trillion or maybe a little higher. The annual deficit added to the current total debt is now approaching 100% of GDP.
In a couple of years, it is going to go like this: 110%, 120%, 130%. You know, Greece is at around 125%. We are not far behind Greece. The only difference I can tell between us and Greece is that we have a printing press and Greece does not. This is why we are able to forestall the day of reckoning.
People around the world are very, very, very nervous about the U.S. government’s situation and they are getting more nervous about the dollar by the day. This is why they are buying gold and silver. This is why there is so much turmoil in the financial markets day in and day out. The dollar’s days are numbered as far as its position as the reserve currency of the world.
The markets are going to go into great turmoil. You do not want to be sitting there wondering what is going on when that happens because it will be too late.
Let me make one other point. Some of you are familiar with the Laffer Curve. This is total taxes collected and this is tax rates. This is a 0% tax rate and this is a 100% tax rate. Obviously, if the tax rate was zero, you would not collect any money. As you increase the tax rate, the government collects more and more money.
When you go passed a certain point, the government actually collects less money even though the tax rate goes higher. You never hear about this from the politicians, but this is a well-documented fact in any economy, not just the United States. When rates go to a certain point, the revenues drop. Why? High tax rates kill business.
How does this happen? Business’ rate of return drop, so they invest in fewer projects or they pull their money out of the country all together. This means there are fewer jobs, less economic expansion, the economy suffers, and it is just a vicious cycle.
When the politicians talk about increasing the rates on the rich, you do not hear them talking about whether that will actually bring in more money. At this point, if we increase the rates to here, we are actually going to collect less money. You see, you will never hear about that until a year or two years later after all the hoopla is over with. This is why I call it a soap opera in Washington, why it is a sideshow. It is Washington insanity being played out day in and day out.
The media is very complicit in all of this. They just love it because they can get you all excited every day about the latest goings on, about what Obama said, about what Boehner said, and about what Reid said. It is all a sideshow. Even if they come to this agreement here, you can see from what I showed you that we are still left with an ever dramatically increasing deficit which will kill the dollar and ruin the economy. If the dollar goes down, the economy is going to be ruined and there is going to be a day of reckoning, I am sorry to say.
This sounds like a fantastic scenario. It will never happen in America. However, these numbers are fantastic and they have never happened before. We are in uncharted waters.
You have a choice to make. You can just sit here and hope things get better, the so-called “putting your head in the sand” and ignore everything or you can decide not to be a victim of these shenanigans and take action. You do not have to participate in this. You do not have to be entranced by the media and the politicians. You can take action and actually benefit from this insanity.
I think you do it, because markets become more and more volatile in this situation, there are more and more tradable short term trends than ever before. The markets are moving so fast. What used to take a year or two for a market to accomplish in going up or going down can now happen in a month. You have seen it.
In my view, it is time, if you have not already done so, to learn how to become a nimble trader of the markets by paying attention to risk first and foremost. You cannot just willy-nilly jump into the markets; you have to understand the dynamics, risk management, position sizing, and then how to wait for the very best opportunities.
If you have never traded, all of that sounds very complicated. I am here to tell you that it is not complicated, but you have to decide to peel away from watching the media for a half-hour or an hour a day. Quit doing that.
Ask yourself how it helps you to watch the news for an hour. It does not help you. Instead, use that time to learn how to trade. Start trading the stock market. Learn how to trade forex. Learn how to trade options. I do not care how you do it, but go and do it. If you do not, these people that you think are going to help you are not your friend; they are not going to help. They are in a box and they have no way out. It is up to you to take action.
If you want to see my deliver my rant on camera, from start to finish, just watch my video below: