Tuesday, October 28, 2008

Fiscal Strategy (!?!) of the Federal Government

In the last post I just stated that we'll have to wait to see what comes next. And that's part of the problem. There is significance to the fact that we do not know with any confidence the fiscal strategy of the federal government.

Take a hypothetical year during which the government is collecting in taxes about $1.25 trillion, but deficit spending $250 billion. In effect, the government is putting the private sector (the rest of us) on notice: "We're taking $1.25 trillion in accordance with the established tax codes. And we're taking another $250 ($700!?!) billion as well, but we're not saying just how, just when, or just whose." Taxes, complex and distasteful as they are, are a known quantity. For most of us, they are the single largest expenditure we make each year. We make our plans around them, we pay our accountants to minimize them, we look for strategies around them, and we brace for them. But the deficit is a different story. There is no deficit code to parallel the tax code. No matter how certain a large deficit may be, there is no effective way for the rest of us to minimize it, plan around it, or hedge against it. It could hit us with high interest rates, with inflation (a hidden tax), with weak export markets (done that), with increased taxes, or with some combination of these eventualities.

I say again, inflation is on the way: though even when here, the feds will not admit it (this last is an interesting read on the state of the US empire: pay attention before you're too poor to pay at all. Do you want to understand WHY the price of gas increased so tremendously?).

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