Nothing But Counterfeit Political Rhetoric And Hauser's Law

- Milton Friedman

Politics is nothing but the insidious term applied to those voted into office who spend their time conspiring to find ways to annex economic wealth and redistribute it for their own gain. Fiat currency is the mechanism used to accomplish this act of legal theft.

What is going on in this country - and has been for the better part of 99 years since establishment of the Federal Reserve - is the slow disintegration of our system. Just like the accelerating increase in the money supply since 1971 resulting from the final decapitation of the gold standard, the rate of corruption and legal theft from the middle class has started to rise at a parabolic rate. This, my friends, is the final stage of the collapse of our country and system. There is no other explanation for what is happening. Anyone who refuses to acknowledge that this is happening or admit that what I just described is factual is either hopelessly naive and in denial or tragically ignorant.

I bring this up because here we go again with another wash, rinse, repeat cycle of the debt ceiling circus of a little over a year ago. That political abortion did nothing more than delay facing the real problem of too much Government spending relative to the amount of revenues annexed by the Government. The so called "Fiscal Cliff" (FC) is this mythical event that will supposedly automatically slash Government spending and raise tax rates across the board. Does anyone really think that the politicians will let their ability to spend be reduced like this? Really?

Occasionally I like to wander over to a blog called The Economic Collapse because the author usually has some nicely written posts with excellent data and factual analysis. With regard to the FC, he had this to say:

Please keep in mind that the "$1.2 trillion in automatic spending cuts" is not for a single year. When you break it down, the cuts to spending would be somewhere around 100 billion dollars a year. And a lot of those "cuts" are actually spending increases that would be cancelled. So those spending cuts would not really put much of a dent in our yearly budget deficits at all. LINK (I highly recommend reading the blog post)

As he explains, the attempt to raise revenues to help cover the spending is more severe than the cuts. But what everyone needs to remember is that if Government raises tax rates, the best case is that it will be revenue neutral and will more likely cause a tax revenue decline.

This statement is backed by something known as Hauser's Law, which states that regardless of the tax rates, the amount of revenue raised by income taxes is constant at 19.5% of GDP: LINK Despite a thorough grounding as an Economics major in undergrad and an MBA from the economics heavyweight University of Chicago, I had never come across Hauser's Law until I read this article in the Wall St Journal: LINK

To add a little analysis to this 19.5% of GDP tax revenue phenomenon, it is also the case that raising the marginal tax rate will most likely cause a decline in GDP (we're talking real, inflation-adjusted GDP here, not the fraudulent Government concocted number). In other words, regardless of what kind of political "deal" is hatched to enable the massive spending deficit to continue to grow while kicking the catastrophe down the road some more, if marginal tax rates are raised, revenues will decline in an amount likely in excess of any real annual spending reductions.

What we do know is that the Obama Administration is now floating the "trial balloon" idea of permanently doing away with the debt limit ceiling. Tim Geithner talked about this in a recent interview on Bloomberg TV and yesterday Obama floated an FC resolution proposal which included the elimination of debt ceiling limitation rules.

You see where this is headed? I don't care what type of rhetorical position is being assumed by Boehner and Harry Reid, they both want to maintain the unfettered ability to confiscate the public's wealth and keep funneling it to their wealthy constituents who put them into office. The easiest path to this end is to enact a big increase in the debt ceiling limit, which enables the Fed to print up a lot more fiat currency needed to fund that extra debt load. Make no mistake about it, when this political rhetoric regarding the FC settles, we are going to see a huge increase in the debt ceiling limit AND a massive amount of QE/Govt stimulus. I will guarantee that outcome.

If you want to protect your hard-earned wealth from this mess you need to start moving as much of your wealth as possible OUT of the system and in to physical gold and silver. This current pullback in the market is the perfect time to start doing that. Given that November was the biggest month this year for gold eagle sales by the U.S. Mint, I would say a few more people are starting to understand why - et tu, Brute?....Have a great weekend