Going Long Printing Presses and Taxes

Bernanke & Co. are going to make sure that the U.S. does not become the next Japan, a country that was plagued by deflation for years.  If there is one thing we can count on, it's that our government will do everything possible to reflate our economy, from cutting taxes to lowering interest rates, buying assets, and even buying companies, which in the long run will result in higher taxes for everyone, an increase in the money supply and higher inflation.

Ben Bernanke is an expert on the Great Depression and he also has a great understanding of the financial crisis that occurred in Japan.  His nickname, Helicopter Ben, was given to him after a speech in 2002 regarding deflation, where he mentioned a statement made by Milton Friedman about using a "helicopter drop” of money into the economy to fight deflation.  He has made it clear that he believes deflation can be prevented when the government controls the money since the government can simply issue more money.  With the recent talk of deflation, it doesn’t take a genius to figure out what Bernanke will likely do to avert a crisis.

Expect the bailouts to continue, especially under the new democratic leadership. The cost of bailing out AIG, and Fannie and Freddie, has resulted in a growing price tag that will likely top $250 billion by the end of the year. The Big Three will help continue that trend as the poorly run automakers join the line of companies deemed “to big to fail.” The U.S. has $13 trillion in debt and that number is increasing by $1 trillion every 15 months.  Someone has to pay for this debt at some point, which will result in higher taxes in the long run.

Sometime in the future, the appetites that foreign buyers have for our debt will dry up.  In fact, the $586 billion investment that China is making in its own country may affect demand for our debt down the road.  As rates start to rise as a result of a lack of demand for our debt issues, I wouldn’t be surprised to see our monetary leaders begin to monetize our debt.  With our trade and budget deficits, money printing, low savings rates and our overall need to print our way out of the crisis, I don’t think you can go wrong going long printing presses and taxes.

Disclosure: none

Comments

[bthomas:]

AIG in the news again at yet another resort hotel. Maybe future conferences should be held at company locations/facilities, unless we are all getting our own personal multi-billion dollar "helicopter drop."

2008 Nov 11 09:00 AM

[Keith Robison:]

I was jokingly stating to go long printing presses and taxes because that is the only thing you can count on to work in the future. The article is implying however, that because we need to print our way out of the crisis, in the long run it will be inflationary and it will likely result in higher taxes. So I would go long securities that can protect capital from inflation, once this temporary deflationary period has ended.


On Nov 11 09:03 AM Pangaea wrote:

> You didn't explain what you mean by that, what you are in fact intending
> to go long.

2008 Nov 11 09:36 AM

[John Lounsbury:]

The key word is temporary. Does it refer to months or years? If one can predict this time frame, they can acquire obscene wealth.

Portfolio Guy said: "So I would go long securities that can protect capital from inflation, once this temporary deflationary period has ended."

2008 Nov 11 10:48 AM

[Keith Robison:]

I don't have a crystal ball, but the experts in the space I've spoke to recently are thinking 3-6 months of continued deflation. Personally I am watching the trend of the dollar and the yen to determine the final deflationary breaking point.


On Nov 11 10:48 AM jlounsbury59 wrote:

> The key word is temporary. Does it refer to months or years? If
> one can predict this time frame, they can acquire obscene wealth.

>
>
> Portfolio Guy said: "So I would go long securities that can protect
> capital from inflation, once this temporary deflationary period has
> ended."

2008 Nov 11 01:59 PM

[Kunst:]

"The U.S. has $13 trillion in debt"

I believe the national debt is currently $10.6 trilion (www.brillig.com/debt_c.../) and the federal debt limit is $11.3 trillion.

Where does your $13 trillion number come from?

2008 Nov 12 02:02 AM

[Keith Robison:]

Jim Rogers quoted that number at a conference I attended at the NYSE last week, but I don't know where he got them from.


On Nov 12 02:02 AM Kunst wrote:

> "The U.S. has $13 trillion in debt"
>
> I believe the national debt is currently $10.6 trilion (www.brillig.com/debt_c.../)
> and the federal debt limit is $11.3 trillion.
>
> Where does your $13 trillion number come from?

2008 Nov 14 12:50 AM