Tax Hikes Deferred!

Minutes ago, the House of Representatives passed a tax relief bill that would keep current tax rates in effect for two more years. While this simply will give the country a problem to deal with in 2012, it provides two years of tax relief that can help the economy recover.

As readers of this blog know, The Report is not the biggest fan of President Obama. However, the President deserves recognition for listening to the will of the American people, and working with the Republicans against the wishes of far-left liberal Democrats who wanted the "Bush tax cuts" to expire, resulting in the poorest Americans experiencing a 50 percent tax hike during a recession with high unemployment. The Republicans also deserve credit for forcing Congress to prioritize tax relief by refusing to allow any other legislation to pass until a tax relief bill came through. Finally, those moderate Democrats who put the will and interest of the American people before political ideology deserve credit for casting votes in favor of the tax relief bill.

The implications of the tax relief bill passing will be noticed tomorrow morning. When the New York Stock Exchange opens, expect to see stocks move upwards. Had tax relief failed, the bears would have taken over the market. There would have been major selling, as people fear the economic damage that a lack of tax relief would cause and also would look to take profits before capital gains tax increases. However, because of persistence and compromise, the American people have been spared tax hikes for at least two years.

Waiting for QE3

A couple weeks ago, the Federal Reserve under Chairman Ben Bernanke announced plans for a second round of "quantitative easing," which quickly became known as "QE2" for short. The plan involved pumping $600 billion into the economy. The idea behind "quantitative easing," officially, is to lower interest rates for two purposes:

1. To promote job growth, something that the United States desperately needs and that the Obama administration has continually failed to deliver;
2. To avoid deflation

I won't argue with the concept of job growth. We need jobs here in the United States. Unemployment remains above 9%, and many unemployed will soon reach the end of extended unemployment benefits. However, the concept of avoiding deflation is absolutely absurd. Has anyone noticed any real deflation in this country? I constantly see prices going up. It costs more to travel, it costs more to eat, and it costs more to buy clothes. And just look at precious metals. The price of gold, silver, and platinum have skyrocketed. (On a stock / finance note -- if you're NOT invested in precious metals, you've been missing out.) For many, we are paying more than ever before in taxes. Sure, some products have come down in price, but this is limited to technology products which are introduced at high prices and then come down to more "mainstream" prices as newer technologies come out.

If you go out on the street (and I'm talking Main Street, not Wall Street) and ask people what "quantitative easing" is, most people don't know. The Federal Reserve is using complicated financial terminology in order to hide what "QE2" really is: the printing of more money, which devalues the U.S. dollar, and makes the money that Americans have worked hard to save worth less.

It seems that whenever times are tough, the government moves forward with plans that involve pumping in more money. If the $600B doesn't do the job, then their next idea will probably be to move forward with "QE3" and pump another $600B (or more) into the economy, devaluating the American people's savings even more.

You cannot solve all problems by simply throwing money at them. Zimbabwe tried this. They ended up with, according to their own government, over 230,000,000% inflation. (Forbes estimated the inflation to be so much that to express the figure, you need to use scientific notation - 6.5x10^108%.) Using the government's numbers, that means that a person with $2,300,000 ended up with their millions being worth just $1 in a matter of a few years. Do I think the Federal Reserve would be as irresponsible as Zimbabwe's Central Bank? No. Do I think President Obama is as foolish as Zimbabwe's Robert Mugabe? No. But simply printing money up isn't a long-term solution that can solve our country's economic problems.