Ad Hoc Commentary – tax for war-on-inequality or war-in-Middle-East?
“…President Barack Obama tonight will declare the U.S. economy healed and say it’s now time to close the gap between the wealthiest Americans and the rest of the country…””…Last week, in a meeting at the White House with congressional leaders, Obama asked them for a new authorization to use military force in the Middle East…” http://www.bloomberg.com/news/2015-01-20/obama-to-declare-economy-healed-urge-closing-income-gap-in-u-s-.html
They say the economy is ‘healed’. They want to tax, they want to fight inequality, and they want to use military force in the Middle East. Since military wars are not cheap, in all likelihood, most of the tax to combat income inequality will end up combating Middle East terrorists. Since most of the tax money is unlikely to find its way back into the working poor of America, America will probably suffer reduced economic growth and increased unemployment in the near future.
War is the ultimate diversion. War should provide diversion from the brewing class warfare within America. War should allow people to accept the State of the Government Balance Sheet. If you exclude the value of human life, then war looks like a very shrewd move.
We did mention before that “…Yellen will likely have a nice honeymoon until late 2015, at which point she would likely need to find buyers in the bond markets…”
With the end of QE, with the need to hike rates before the next crisis, and with the fear of contagion coming from Europe meltdown, the fate of the government bond market hangs on uncertainty. We probably need an alternative to unsecured government borrowings. We probably need the new asset class of secured government borrowings backed by infrastructure investments that we talked about in the past. However, time is perhaps running out. America can boast while Europe goes into meltdown and capital flees to American shores. But what would they do when it is America’s turn? We should all be concerned because America is the financial center of the world. Even though a crisis in government bonds is very likely to break out later this year, our favorite S&P will likely do well this year, though with much volatility. We live in very interesting times.
Good luck in the markets.