YOUR MIND ON MONEY: Ramifications from cliff deal

2013-01-03T09:15:00Z 2013-01-03T16:26:04Z YOUR MIND ON MONEY: Ramifications from cliff dealF. Marc Ruiz Times Business Columnist
January 03, 2013 9:15 am  • 

After more undue hype than a heavyweight boxing match that results in a first round knock-out, our nation has avoided the dreaded fiscal cliff.

It would appear the president and Senate Republicans have the negotiating skills of a child working a lemonade stand, as after months of drama the product of their bargaining consists of a meager 13 percent increase in only the top tax bracket, slight increases in tax rates on estates, dividends and capital gains, and $15 billion in spending reductions, which is pretty much a rounding error in the scope of the federal budget.

Did Washington forget that this whole debacle was born of the need to reduce the federal budget deficit? The hand dealt this week is projected to add an additional $4 trillion to the deficit over the next 10 years, and we all know Washington never comes in under budget.

It is clear the current two-party system is not capable of managing the federal budget process. The problem is now too complex, the government is simply too large and our politicians lack the courage to conduct an honest discussion about the Social Security and Medicare programs.

The real question is how much policy punishment can the U.S. dollar take before irreversible cracks emerge in the currency? The answer, if we look at the Japanese yen and the euro appears to be … a bit more.

The rub when it comes to currencies, however, is they work until they don’t, and unfortunately the timing and nature of problems in this arena are extremely difficult to anticipate.

But a couple of trends look like good bets. The government will continue to accumulate unsustainable debt, and the Federal Reserve will continue to print money to deal with it. The result likely will be financial repression consisting of suppressed interest rates, slow growth and high structural unemployment.

In the world of financial repression, some investors will be compelled to take on more investment risk than they may have previously been comfortable with.

It is extremely important to be cautious in this regard as financial markets are always precarious, but when the government aggressively abuses management of its currency, perhaps real value is best attained investing in corporations that own real assets, are able to earn real profits and are able to distribute sustainable dividends.

And who wouldn’t want to own a little gold in this environment?

In a perfect world the dollar would serve as the ultimate store of value. In the world our government appears determined to drag us, however, the smart money may look to stocks and precious metals as the more viable alternatives.

Opinions are solely the writer's. F. Marc Ruiz is a local financial columnist and co-host of "Your Mind on Money" at noon Mondays on WLPR-FM 89.1 The Lakeshore. Reach him at

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