Sooner versus later we are going to hit what I call the Fiscal Speed Bump. Now the politicians and the talking heads are alerting us between commercials that congress is broken and it cannot agree and, suddenly, the “end is near.” Special thanks to all the “Chicken Little” on TV, but especially to the handsome Secretary of Treasury, Timothy Geithner, who plays the role of Foxy Loxy in this Chicken Little story. You see, the Chicken Little story has been around for centuries. In the more recent adaptation, the U.S. Government had Walt Disney create the cartoon movie in 1943 during World War II as a propaganda piece to sway us in discrediting totalitarianism, specifically Nazism.
Now, the fear is that when Jan. 1, 2013 rings in, the Bush Tax Cuts will expire, increasing everyone’s tax rates. Then, the payroll tax holiday expires, returning proper funding to the social security trust fund, and the taxes embedded in the Patient Protection and Affordable Care Act (ObamaCare) kick in, and then the country will slide into another recession. On top of that, our congressional leaders — a term I use lightly — could not agree on increasing the national debt (by the way the president voted against increasing the debt ceiling when he was a U.S. Senator) back in 2010 and both parties agreed to automatic “sequestration” cuts. The total cuts are $1.2 trillion over a 10-year period, but during 2013, the cuts will only be $70 billion. Of the $70 billion cut, half the cuts will be from entitlements and the other half from defense.
Foxy Loxy, the Republicans, the Democrats, essentially everyone in Washington D.C. except for Sec. of State Hillary Clinton has warned us how dangerous cutting these $35 billion from an annual defense budget of almost $700 billion will be. It is unbelievable that we as the only standing world super power cannot judiciously cut five percent from the 2013 defense budget. The more they tell us that these cuts would destroy this country and gut our military, the more they sound like they are saying “the sky is falling, ” as Chicken Little did when an acorn fell on his head.
The reality is that the fiscal cliff is nothing more than a fiscal speed bump. The rest — the hype, the fear — is just Chicken Little.
Yes, the economy will slow because the U.S. Government is going to spend less. We are all spending less, doing with less and yet the sky is not falling. These Chicken Littles that tell us that without the additional government spending the unemployment is going to go to 9.1 percent are the same ones that told us that when we spent the $800 billion stimulus in 2009 the unemployment rate would “never be above six percent,” hello eight percent. There is no time like the present; we might as well start by allowing tax laws to expire, and spending cuts to start.
There are many versions to the Chicken Little story as it has been around almost as long as the Bible. The most common ending is the one where after Chicken Little scares everyone into believing that the sky is falling, all the chickens run into Foxy Loxy’s cave and become dinner for Foxy Loxy. The moral of the story is to not be a “chicken,” have the courage of your convictions and not believe everything you are told. Now I am not saying that Sec. Geithner is going to eat us, but he is leaving his post on Inauguration Day, and we will still be here. I like my chances, I am not buying into this fiscal cliff hysteria, and I will continue to think and invest for myself. My best Fiscal Speed Bump financial advice is to delay your large ticket expenditures — those over $1,000 — to February, save more now, spend less and buy U.S. stocks with your money that has a least five year horizon.
The opinions and recommendations expressed herein are those of Mr. Garrido and do not necessarily reflect those of the firm and are subject to change without notice. This information is not to be construed as an offer to sell or the solicitation of an offer to buy any securities. The information contained herein has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be a complete analysis of the security, company or industry involved.