Fiscal cliff, higher taxes to make 2013 ugly year for American economy: Doug Casey

In an interview with the International Speculator on Wednesday, Doug Casey of Casey Daily Dispatch discussed the upcoming fiscal cliff, the national debt, Europe, the United States dollar and how to grow an economy. Throughout the interview, Casey concluded that 2013 will turn out to be quite a bad year for both the U.S. government and economy.

The fiscal cliff refers to taxes that would increase for 90 percent of Americans and automatic spending cuts to future increases. Although many economists state that this would put the U.S. back into the recession, Casey noted that the country is already in the “Greater Depression,” but higher taxes would just take even more capital out of the productive members of society and generate more revenue for government coffers.

One way to solve the ailing economy is to lower taxes because it would assist in unraveling “distortions and misallocations of capital that spending was causing – which is good.” This, of course, would provide short-term pain because individuals would have to find new jobs and many companies that depended on the government would go bankrupt, but, as Casey said, it’s pertinent to get the economy back on its feet.

“However, it’s not the U.S. economy that’s facing this alleged cliff; it’s the US government. It just goes to show how hopeless the situation is, when people equate the government with the economy,” stated Casey.  “They’re two entirely different things. The only way to revitalize the US economy is a vast reduction in taxes and a vast reduction in government spending. Instead, these idiots are arguing over how much to raise taxes and how little they can cut spending. Of course it will be a disaster.”

It is no secret that many Americans would equate raising taxes and cutting spending as austerity, which is akin to the situation transpiring in Europe, such as Greece and Spain. In fact, as the interviewer noted, the German leadership is urging the rest of the continent to adopt such policies.

Casey explained that Europeans are addicted to government spending, something that is apparent considering all of the protests and riots – he quipped that future generations “will all be houseboys and maids for the Chinese.”

Nevertheless, Europe is different from the U.S. because they understand that the debt is a major burden and must be addressed, while Americans believe the economy can grow by borrowing and spending (perhaps even inflating).

“2013 is likely to be a nasty year. I hate to be a permabear, but there’s no alternative,” said Casey.  “The two parties that run the US claim to be different, but it’s more accurate to see them as the tax-and-spend party and the tax-and-spend-more party. One thing they both agree on – and they’re dead wrong, but they agree – is that the economy rests on confidence, and that if they can only restore confidence, the economy will grow.”

Casey went onto say that the economy won’t grow because the dollar is being debased each day, the American people just consume rather than save, the government implements heavy taxation and excessive regulation, the Federal Reserve maintains low interest rates and the citizens think “the government is a magic cornucopia,” citing President Barack Obama, House Speaker John Boehner, House Minority leader Nancy Pelosi and Senate Majority leader Harry Reid are in control of the congress.

On the other hand, what actually does grow an economy is when people work, build, save and invest and when they have real money (gold).

President Obama’s stimulus program, according to Casey, was an example of how inept the government is and how clueless the American people are when it comes to economics.

“Instead, today they mostly have debt. Government stimulation won’t work if capital doesn’t exist or is punished for being used,” espoused Casey, who noted that recovery signs are unnecessary when people have savings and capital, which can later be deployed.  “If you’ve destroyed people’s jobs, taxed them more for investing wisely, piled on so many regulations that you can’t sell lemonade without decades of permitting and clinical trials, all the stimulus in the world won’t create a vibrant economy.”

The tax hikes being suggested as part of any fiscal cliff deal between the president and the Republican leadership will be “significant and immediate” because Washington wants to generate as much as 20 percent in additional revenue next year. This, Casey iterated, will be rather difficult to earn a living and make Americans less willing to invest as well as wisely.

On top of Federal Reserve Chairman Ben Bernanke’s latest announcement that would see an extra $1 trillion in its balance sheet next year, Casey explicitly said the U.S. has no other choice at this point. This isn’t just the U.S., but countries around the world are embracing similar policies.

Perhaps the only option for the U.S. is to “default on the national debt, abolish Social Security, Medicare, Medicaid, and cut back the military about 90 percent.”

Many expected gold to soar upon Bernanke’s new $40 billion per month announcement. The spike in prices only occurred for minutes, but then it just declined and still sits around the $1,700 mark ($1,650 at the time of this writing).

“All of this currency creation is going to ignite a real bubble in gold – and silver,” added Casey.  “Gold is certainly not cheap compared to its lows a decade ago, but it is the only safe haven we have against the destruction of the US dollar and other paper money. Remember, I don’t buy gold to speculate on its price rising, I do it for prudence.”

Erskine Bowles, who co-chaired the White House’s deficit-reduction panel in 2010, told the Wall Street Journal that the fiscal cliff negotiations have been “pitiful” because the GOP and the Democrats aren’t compromising.

“When you think that for better or worse, America will spend over $40 trillion in the next 10 years and these guys can’t find $200 billion to close their divide and prevent an economic collapse, it is pitiful,” said Bowles in an email to the news outlet.

Boehner put forward his Plan B, a proposal that would extend the Bush tax cuts on wealthy Americans earning more than $1 million. It is expected to make it to the House floor for a vote, but even if it passes, the president has vowed to veto it.  The congress is also scheduled to vote on President Obama’s long-term plan to bring back the high tax rates of the 1990s on incomes over $250,000.

“Tomorrow, the House will pass legislation to make permanent tax relief for 98.1 per cent of American people,” the House Speaker told reporters in a brief 52-second appearance on Wednesday.  “Then the President will have a decision to make. He can call on Senate Democrats to pass that bill, or he can be responsible for the largest tax increase in American history.”

No matter what happens, as Casey said in his interview, the U.S. will have a bleak 2013, but only be a warm-up to 2014.

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