Lear Capital: The 11th Hour Fiscal Punt and Gold

By Roger Baettig | January 07 2013 1:56 PM

Let me see if I got this right. In the days and hours before a deal to avoid falling off the fiscal cliff was made, both parties positions were unbending. There could be no compromise. At stake, were higher taxes for everyone and no strategy to avoid the perils of rising debt. Specifically, we would see taxes rise $2000 – $3500 per taxpayer across the entire spectrum of income-earners.

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The 10th hour came and still no deal. Then in the 11th hour, a breakthrough! A deal was struck, the world was saved and a 157 page agreement materialized. Really? What did it say? It said, higher taxes for everyone and no strategy to avoid the perils of rising debt.

It’s true! We got exactly what we were so desperately trying to avoid and maybe more than was bargained for. Without delving into all the ways your taxes increased, let’s just look at the effect of a lost payroll tax holiday. A household income of $50,000 would see a $1000 increase in taxes. A $100,000 income would see a $2000 increase. That sounds a lot like middle class people to me.

Then there is the other 156 pages of “The Deal.” As each day goes by, more and more of its content is revealed. Deductions are being phased out for incomes well below the reported $400,000 level, capital gains taxes were increased and SPENDING was increased by a reported $74 billion. Now, how did both parties come together on this deal in the 11th hour? Remarkable! Then to top it off, no deal on the debt ceiling, entitlement spending or deficit trimming

Surely the details of this fiscal punt will continue to unfold. For the time being, however, it looks like all the higher taxes to be collected were spent. It’s hard to figure how we solved anything, yet the markets saw reason to rise and gold sold off. I suspect a day of true reckoning quickly approaches. In my opinion, it won’t be long and both the stock and precious metals markets will wake up to the reality that debt will continue to rise and to whatever extent you believe rising debt is Debt-Trimental to our economy, nothing has changed.

What does this mean for the gold and silver price? Over the last decade, debt has more than doubled, the silver price has tripled and conservatively, the gold price has risen more than 400%. You just can’t say that about stocks. So unless you think our fiscal ills have been cured, perhaps it’s time to take a fresh look at gold and silver.

For more breaking cliff-hanger news and information on gold and silver, visit LearCapital.com.