Here’s his take:
…the plunge in consumer prices is a great thought. It is a tax cut of massive proportions. The drop in retail gas prices alone has been variously estimated at $350 billion in new consumer purchasing power. In fact, real average weekly earnings have now risen four straight months on the back of the CPI drop. Over the past year, this key measure is up nearly 3 percent.
And while consumer prices are deflating, producer prices — which represent wholesale costs to business — have been deflating even faster with the plunge in energy and other commodities. Consequently, corporate profit margins are improving as costs drop faster than prices. This important development is also overlooked.
Inflation is the cruelest tax of all. It is a prosperity killer. But the inflationary decline is the most pleasant tax cut of all, and is a key part of the recovery process.
Although the stock market has stumbled in the new year, it too will benefit from the inflation tax cut. Remember, the capital-gains tax is un-indexed for inflation. As prices moved up towards 6 percent last summer, stocks moved down big-time. Now, however, the decline of inflation is reducing the effective tax rate on real capital gains from roughly 40 percent last summer to only 15 percent through December. This is a huge tax cut on stocks and wealth-creation. While President-elect Obama appears to be willing to leave the Bush tax cuts untouched in 2009, and perhaps 2010, the falling consumer price index is slashing the cap-gains tax rate in real terms.
Indeed – if we generally leave things alone, things will start to improve…just as they would have started to improve if FDR had left things alone and had Jimmy Carter left things alone. Problem is, Obama is the direct political descendant of FDR and Carter, and he’s not going to leave things alone. Democrats, you see, actually believe that FDR’s spending cured the Depression. I know, hard to believe that someone could be that obtuse, but we’re dealing with Democrats, here.
The $1,000,000,000,000.00 or so stimulus package is going to get passed, in some form, in the next month or two. What this means is just about the time the market is finished shaking out the bad investments and clearing the decks for a new round of growth, Obama’s spending plan will both suck up dollars which will be needed for rebuilding the economy and it will drive up inflation as it adds a huge amount of currency to an economy which already has too much on hand for the money in circulation. All Obama need do at that point to turn a recession into a depression is to start enacting various protection measures for US industry.
We GOPers lack the power to stop Obama and his Democrats. Now, we’ll reap the benefits of what will prove liberalism’s fourth economic failure in the United States, but the problem is that we still have to weather the storm between the opening of the Obama Error, and the shutting of it down either in 2010 or 2012.
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