On One Issue I Never Lose Sleep

Friday, 04 Jan 2013 10:36 AM

By Robert Wiedemer

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I lose sleep over a number of issues pressing on our economy, but one issue that I NEVER lose sleep over is whether Congress will figure out a way to borrow more money. The last few days have unfortunately proven how right I am.

I said this many times before in the last few months when people asked me whether I was worried about the fiscal cliff. I told them I wasn’t worried because the easy out for Congress is to borrow a lot more money — not make hard decisions about spending or tax increases — and I thought they would take the easy out.

Guess what? That’s exactly what they did.

Editor's Note: 5 Signs Stock Market Will Collapse in 2013

Although I may sleep easily about the fiscal cliff, I don’t sleep easily about our future. The problem is not that Congress WON’T figure out a way to borrow more money. The problem is that they WILL figure out a way to borrow more money. The last few days prove there is little real interest in tackling the deficit.

Although, I think we will see a bigger fight when the debt ceiling debate comes up in a couple months, I think we will go down the same path — lots of arguing to the very last minute (or maybe beyond the last minute) and then Congress will raise the debt ceiling and borrow a lot more money.

Yes, I am sure they will make some spending cuts, but most will be long term and most of the long-term spending cuts will simply be decreases in the rate of increase in our borrowing. They will simply agree not to increase spending as fast as we normally would and call that a spending cut. Real long-term spending cuts are highly unlikely, and significant real short-term spending cuts are off the table.

The result? We will be rewarded. The stock and bond markets will be happy. The economy will do better than it would otherwise.

But we are really pushing our luck. Eventually, the markets will not be happy, and eventually, the money printing that is so crucial to making the massive government borrowing possible will cause inflation. Ultimately, that will pop the stock market, real estate and bond bubbles and with it, the economy. But, don’t think we are off the hook because I used the word “eventually.” Lots can go wrong before “eventually” happens.

The economy’s growth will be tenuous this year. It may even go into a minor recession. We may already be in a recession. The stock market is more fragile than it looks and there is a reason more and more people are voicing concerns about the bond market. But “eventually” won’t come this year. At the same time, the really big problems that “eventually” brings are increasingly becoming a certainty.
 
Editor's Note: 5 Signs Stock Market Will Collapse in 2013

So, the media and the markets should be worrying a lot less about the fiscal cliff and debt ceiling issues being big problems and instead be worrying a lot more about the fact that they aren’t big problems.

About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $300 million under management. He is a regular contributor to the Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here to read more of his articles. Discover more about his latest book, "Aftershock," by Clicking Here Now.

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