Via Mark J. Grant, author of Out of the Box,
It is not the United States of Europe but the other way around; the Europization of the United States. It is not a new game but a very old game and not played with such fervor in America since Franklin Delano Roosevelt stirred the pot which was done in an attempt to end the consequences of the Great Depression. This morning’s commentary is not meant just for political consideration but what the ramifications of the Democrat’s strategy will do and are doing to the financial markets. Round I has now all but ended and the next Round will, in my opinion, bring entirely different results.
Round I consisted of the response of the world’s central banks which was to flood the globe with money in a bid to curtail the financial crisis of 2008/2009. This has buoyed all of the markets, each and every market, because small pieces of green and blue paper must be put somewhere. There are consequences for this however and five years later, which is now, I believe we are about to have to start dealing with them. It may be Inflation or, even worse, Valuation but we are beginning to see the signs of change as Treasuries begin to head higher in yields which will affect all of the other bond markets and then the equity markets as a matter of relative value. Keep your eye fixed on the long bond and on gold as primal indicators of what is to come.
The recent national election in the United States clearly demonstrated the oft quoted phrase that “Americans vote from their pocketbooks.” Fluff, philosophy and hyperbole are the centerpieces of the American elections but when real money is on the table it is from here that most people vote because it is in their self-interest to do so. The scenario is not too complicated and Romney was correct, if perhaps politically stupid, that a large portion of Americans will vote for the Democrats because they are giving them social programs and entitlements which may be read as “Money” to do so. People just are not going to vote to cut off their own flow of funds and so the lower classes in America, en masse, have voted and will vote to keep the money coming. This strategy has ramifications however because the money must come from somewhere and so we have entered the arena where more and more taxes will be demanded from individuals and corporations to “keep the Spice flowing.”
This was clearly demonstrated in Obamacare, in our latest round of tax increases on individuals and in yesterday’s comments from the Senate majority leader, Harry Reid, who did not speak about curtailing social programs at all but focused on increasing taxes on oil and gas companies and on increasing corporate taxes in general while curbing write-offs. America now has the European infection, in my opinion, where personal taxes are as high as 75% in France and not too far behind that in many other European countries. Corporate taxes are also generally higher in Europe and the banks are the bedfellows of the State which are used to control and dominate the social programs of the various governments. There is no way around the general conclusion that America is becoming socialized, that having money and being successful is a bad thing, which is the general philosophy in Europe, and that the United States is going through a very serious moment of social and monetary equalization where those with capital are supposed to pay a great deal of it out to those who do not have capital as a matter of their patriotic duty.
This bouncing ball is not too tough to follow. The people with money pay higher taxes and then have less money to spend on goods and services. The corporations pay higher taxes and then have less money to spend on acquisitions, dividends or growing their business. The money flows to the people who are not in the middle class but are poorer and it gets spent on the basics of life and not on consumer durables. The rich are poorer, the middle class is poorer, the poor become better off at first and then less well off in the second instance as taxes bleed the entire economy of excess capital. Votes are, in fact, bought and paid for but the money used to pay for them will begin to dry up as the Europization of America continues unabated. This will also have a profound impact upon all of the financial markets which will dovetail into the consequences of the central banks and so even that capital gets down streamed and leaves the markets by way of ever increasing higher taxes for both corporations and individuals. I expect soon, and it has certainly been rumored, that not just will the Democrats go after the exemption on Municipal bonds but that they will propose some kind of national Value Added Tax (VAT) which will be one more method to take money from those that earn it and hand it over to those who do not to assure their political stewardship of the nation or, more bluntly stated, to keep themselves in power which is always the main goal of politicians of course.
I point all of this out this morning not to state right or wrong but to state with clarity that the markets will be seriously impacted by all of this. The equity markets may be at all-time highs today as fed by the central banks but a turn is coming, a quite severe turn in my view, which will wipe the glitter from the ornaments. As Treasury yields begin to rise and as markets reassess relative value then the rose petals will begin to fall and if the central banks begin to end their monetary flood at the same time then “Katie Bar the Door” will be the result.
Later will be too late. The time to prepare is now!