Gold and the Double Dip
As the President addresses the uncertainties within the markets and the economy, a primary question on most people's minds is, "will there be a double dip?"
As I read this morning's Breakfast With Dave Rosenberg, Chief Economist and Strategist for Gluskin Sheff,he comments, "Everyone has this view that growth will merely be slow but that there will be no double dip.Nobody seems to entertain the notion that we may still be in a recessionary state."
I agree entirely.As I have said on numerous occasions, it's all about jobs and right now under employment and unemployment is still at its crisis peak.We hear about new jobs being created, but not enough to affect the unemployment data.And as one commentator said this morning, it seems all the jobs being created are government jobs.
Conclusion?We have yet to recover from the first recession.The economy dipped and is still dipping - simple as that.So where does this leave gold?
It's as though Gold made up its mind a long time ago.The path has been chosen, debt ceilings have been raised and very few people believe we can tax our way back to pre-crisis debt levels.In response, Gold has taken on the role of safe haven and protector of wealth as all the known cures for the debt crisis involve stimulus of some kind.This leads to a weak dollar and by default, higher gold prices.
The proposal to solve the debt issue that people are hanging their hats on is raising taxes on those earning more than $250,000 per year.I'm just not seeing the math add up.If we are talking about just 3% of the workers, that's about 4 million workers.Now think about this one.
If we collected, an extra $10,000 from each worker we would collect an extra $40 billion in taxes this year.Sorry, but that's nothing.If we collect an extra $100,000 from each person that's $400 billion in added tax revenue.That still leaves us a long way from balancing even one year's budget.Even if we collect an extra $250,000 from each person that's $1 trillion of added tax revenue.
We would have to collect an extra $375,000 from each worker to balance one year's budget.Keep in mind we are talking an extra $375,000 per year.To put this in perspective, we could make a case that today, you would have to have at least $1 million of annual income to incur a total tax bill of $375,000.So, how much income would you need in order to be required to pay an extra $375,000?$2 million - $3 million?
Whatever that number is, it doesn't matter.Only 350,000 people in the whole country make $1 million or more annually.These are the most current stats I could find.I suspect there are fewer people now making $1 million per year than there was a year ago.
Now, let's just for a minute say we can collect an extra $375,000 per year from each person who makes more than $250,000 per year, for a total of an extra $1.5 trillion dollars.That's still not enough to recover the economy.We already tried that this year.If we can't borrow an extra $1.5 trillion to jump start the economy, how can we take $1.5 trillion out of the economy and expect recovery?
It seems you can't challenge the wisdom of gold.Gold knows!Unemployment data indicates the recession never ended and therefore cannot dip again.And, recovery cannot come from taxation.The math does not work.That leaves very few options all of which are positive for gold.
All the reasons gold demand and gold prices have continued to rise are all the reasons gold prices could keep rising.