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While it may not be a surprise that the Republicans are preparing to
yield on their vow to oppose tax hikes, it should raise investor concerns the
world over that an upcoming budget agreement will likely involve a
Congressional surrender of its authority to set the federal debt ceiling. In
exchange for this, it appears that the Republicans have simply done nothing
to halt, or even curb, the dangerous federal spending trajectories or the
current drift towards greater state control of the economy. President Obama
has politically outmaneuvered the Republicans, even going as far as evoking the
Newtown massacre as a reason for quickly concluding a deal. As a result, it
is likely that the GOP will bear the blame for any breakdown in fiscal cliff
negotiations. They could wear such an outcome as a badge of honor, but
nothing indicates that they have the political courage to do so.
Given the drift in Washington, those who had hoped for a significant
improvement in the United States fiscal prospects will have nothing but lumps
of coal in their Christmas stockings. At the same time, the Fed continues to
hold its foot to the floor with increased quantitative easing that will pump
massive liquidity into the system (see Peter Schiff's latest commentary for more on this). The combination can lead to
stagflation and a debased U.S. dollar.
Republican House Speaker John Boehner has indicated a willingness to
accept new taxes of $1 trillion, despite his party's pledge to halt tax
increases. Diverting a trillion dollars out of the wealth-generating private
sector into the government's coffers can only hurt corporate investment,
particularly the venture capital sector that is so vital to the flow of new
ideas and technology that stand at the core of America's highly profitable
international technological lead.
But far more momentous than his capitulation on taxes is his agreement
to pass debt limit power to the president. This decision removes any chance
that the United States will ever do anything meaningful to address its fiscal
imbalances.
Following the establishment of the Federal Reserve, the House of
Representatives' approval of the Federal debt limit was needed to restrict a
profligate government from endangering the credit of the United States and
encumbering future generations with an unbearable level of debt service. But
in order to pander to voters, both Republicans and Democrats have paid little
heed to this important duty and have rubber-stamped continued increases in
debt. In recent years, when Federal debt began exceeding GDP, Republicans
finally withheld the stamp in order to force a real budget discussion. But a
combination of their own hypocrisy and political mishandling has rendered
those attempts futile.
In the meantime, both parties have avoided making any meaningful cuts
in government spending and have instead offered accounting gimmickry as a
poor substitute. Neither party appears willing to risk votes in order to curb
the profligate and economically suicidal growth in out of control entitlement
expenditures.
Last week, The Economist magazine published a list of 80 countries,
ranked in order of quality of life as determined by such elements as economic
well-being, intrusive government and crime. The United States has now fallen
to sixteenth position (with Switzerland in first position). The combination
of $1 trillion of new taxes and the likelihood of increased financial and
commercial regulation will likely push the U.S. further down the list.
It is time for politicians, and particularly Republicans, to put the
nation before their individual careers. Should they fail in this great
patriotic call, they will be sentencing their fellow Americans to a future of
falling living standards, currency decline and poverty.
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