Why the Fiscal Cliff is Like Fight Club

The first secret of Fight Club is that there is no fight club.

Well, loosely translated, that applies to Washington where the first rule of Debt Club is that there isn’t one.

Both parties claim to be the grown-ups about our debt.

But the reality is that both parties are against debt when the other guys are in charge, and for debt when they can use it to their own political advantage.

I’ll get to how this affects your portfolio dramatically in a moment…

The other way that Washington is similar to DC is that, as in the movie with Ed Norton and Brad Pitt – spoiler alert – there actually is only one character because the Brad Pitt guy is imaginary.

Well, so it is with the Republicans. They pretty much just beat the crap out of themselves and imagine that they have an adversary.

To wit…

The so-called Fiscal Cliff will hit the middle class because contrary to Obama’s PR department, aka the media, the Bush tax cuts were across the board and not just for the rich.

Obama’s out to raid the middle class piggy bank.

The reality is that ending the tax cuts for the rich will have a minor blip of an impact on the debt or deficit – but Obama wants to raise taxes on the rich for political purposes because he views it as ‘social justice’ – even though he’s admitted it won’t do any real good, and could harm the economy.

He doesn’t care about that the way he did prior to re-election day.

Now that he won, the gloves come off, and it’s the American taxpayer of all but the 47% who don’t pay Federal income taxes who will get burned.

His main goal is to split up the GOP and have them fight over tax increases. Obama has set it up to where he wins if we go over the cliff because taxes will go up for everyone and he’ll blame Republicans.

But the truth is that Obama wants the tax increase on the middle class because that’s where the real money is to fund his entitlement state agenda.

Of course, he can’t admit that out loud and that requires the GOP to play their usual inept part in the negotiations and Boehner is falling for it.

Right now everyone thinks the GOP is fighting against tax increases for the rich when in point of fact, the real battle is for the wallets of the middle class.

What the GOP should have done is let Obama have his tax deal where the middle class gets spared and the rates go up for the wealthy…

And down the road when that was exposed to have done nothing for the debt crisis, contra to Obama’s fiction,THEN it would be on Obama to explain how he’s going to pay for his grand schemes when the Tax the Rich mantra has been exposed.

I mean, come on… the average taxpayer doesn’t understand economics… and Obama’s counting on that.

Alas, the GOP has shown no inclination to think their way out of a wet paper bag, and so we have the apparent statemate known as the Fiscal Cliff.

But like Fight Club, it’s an illusion.

Given that the Democrats are better at the long game than the GOP, I have begun to modify my prediction that the Fiscal Cliff will be averted at the last minute by politics as usual.

An alternate scenario appears to be playing out in which Obama and the Democrats are willing and even eager to go over the cliff with a view toward making the House GOP a scapegoat and give them a chance to retake the House in 2014.

In normal times before the Democrats were taken over by the Progressive wing of the party I think my view would be correct. Clinton never would have done what Obama apparently is willing to do to win the long game.

After all, Clinton and Gingrich DID work together.

But Obama apparently is determined to win at all costs.

Going over the Fiscal Cliff would mean that tanking the economy in the short term is a price the Democrats are willing to pay in order to regain full control of DC… a dubious proposition, but they might be right.

In this game of legislative and electoral chicken, I’m not sure who will blink and history suggests that we’ll get tax increases of some kind now in exchange for future
spending cuts that will never happen – i.e. the can kicking will continue.

But if we reach the Fiscal Cliff and Obama does a Thelma and Louise, it will be because he is playing for keeps. After re-election, he’s emboldened, and that’s not good for a guy already known for his hubris and overconfidence in these matters.

He may just think he can pull off this ‘destroy the economy so he can save it’ in time for 2016 scheme.

Only time will tell on the big picture, but I wanted to give you an update because there is an immediate lesson in this for us.

In terms of ‘investing’, the days of the long-term investor are dead.

With massive swings in the markets from year to year and the unstable political and geopolitical situation, it is far more risky to park your money for the long-term than it is to trade the short term swings with a percentage of your capital.

The good news is that is precisely the kind of approach that we take here at Absolute Wealth.

Stay tuned because we’re keeping our fingers on the pulse of each swing the markets make so you can profit no matter which way the fight in DC or the economy goes.

Good Investing!

David K. Miller
Managing Editor, Absolute Wealth

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