Fall Over the Fiscal Cliff, Please!
December 30, 2012
Posted by on
Howard Dean, six-term Governor of Vermont and unsuccessful 2004 Democratic presidential nominee said the following according to Ian Bremmer, “If you go over the cliff and stay over, Dow 15,000 in six months.” I couldn’t agree more with Mr. Dean.
I wrote this blog back in July of this year advocating this very thing – what is now known as “Falling off the Fiscal Cliff”. According to model price theory, more specifically Solvency (See under Key Concepts), if the Americans can initiate movement along the Solvency Curve, where the US federal government can substantially slow down or halt their insolvent condition the other sectors of the economy, namely corporations and individuals will respond by spending cash which they have been accumulating in record amounts for the past 5 years.
If a “Fiscal Cliff Deal” is not in the offing market participants initially will probably view this as a negative occurrence and sell the market. This would be, in my opinion, a great opportunity for purchasers. Also the US economy will probably slow down in the initial months as corporations and individuals get use to paying higher taxes; noting over time, the world didn’t come to an end. As time unfolds idle cash on hand will be spent as growth accelerates as demand rises. With real demand from the private sector come sales and profits, lifting equity prices and asset values. This virtuous circle all having been started by Republican and Democratic misbehavior that seemingly everyone deplores – except for me.
To me we are at an important inflection point for the United States. Will the federal government continue marching towards insolvency – Japan like – or will the imbalance of massive federal deficit spending over the last 5 years be curtailed allowing the private sector to takeover its’ leading position in the economy creating wealth, jobs and growth.
Mr. Dean’s comments were viewed negatively in the “tweeter-verse”. In my opinion and according to model price theory and our Solvency Curve in particular Mr. Dean could be too conservative in his estimate of the Dow if the US indeeds “falls over the fiscal cliff”.
Will be interesting to see what happens.
My past blogs on this subject back in July, 2012.