Wednesday, January 9, 2013

The Daily Note - Debt, Inflation vs Growth

***** All things, good or bad, must come to an end someday, but my belief is that the markets and governments, good or bad, will continue no matter what we do in our lives.
As I look toward the possible future, I see nothing but further inflation and debt, which unfortunately will be coated with good looking earnings to fool most of us into thinking that things are going well.

Inflation is fueled by more money in circulation, and the government has been doing nothing but printing it in record amounts for the past four years running. Unfortunately it's a cycle that governments could never nor will they ever fix because it's not in their interest to do so.

Members of our government keep trying to convince us that what they are working diligently to solve the problem, but I don't care where you live in the world,  as long as you are unable to reinvest your income, it is impossible to have real growth. The government by collecting more taxes is assuring that you cannot invest your income. In fact what they are asking is to pay them more first then go and borrow money to invest in yourself. Which is exactly what they mandated with the Fiscal Cliff deal and It's a recipe for disaster.

Those who are in that cycle know it best because they are the ones trying to keep the wheel turning. Small businesses who were once  the mom and pops and the backbone of American ingenuity and earnings, are now required to pay additional taxes not only for themselves but also for each employee.  If they were to increase production, to generate more sales,  they have to borrow, which assures increased prices for the goods. It also follows that if they borrow, they may not be able to hire more workers, and production can fall or quality can fall, or jobs in cheaper areas are used.  The rest of the population, or the workers only know their money doesn't buy what it used to therefore will wish to increase their income, ask for a raise, so it will. Unfortunately, requesting more income only adds to the problem.

The only way for growth is investments. Unfortunately those of us who have the means to invest keep finding more hurdles to do so and those of us who earn via investing in companies will pay more for our success as the expense of the companies we wish to support.

Let me put it this way: If we invest in a company and we make more (capital gains) , we pay more (increased taxes) , if we pay more (in taxes), we have less to invest next time.  Capice? On the other hand, if we invest, pay less in taxes on our earnings, we will have more to invest which equals to more growth and therefore will pay more taxes in the long run. Capice? Those in Congress who voted "Nay" on the Fiscal Cliff deal and all the QE's before it, understand this concept, those who voted "Yea" do not. Since there are more who voted "Yea" means that the problem I stated above is a long way from being solved, therefore borrowing, injecting and inflation will continue. Now if the debt ceiling is eliminated, where and when do you think it will all end?

When Will It End by The Romantics on Grooveshark

Happy Trading, Living and Dancing

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