Raise Tax or Print Print Print

A recently graduated college student from UC Irvine approached me one day while I was browsing at Border's. He told me that he's recently been laid off by an accounting firm. I wasn't quite sure what his intention was, but he did ask some interesting question.

His first question for me was "Do you think the government will raise tax next year?".

I replied with "Yes, I believe they have to". I followed on and said "but they can also print money".

He looked a bit dazzled and replied "yes, but that will lead to inflation."

The conversation ended when I received a call and had to leave.

At the end of it, this young man was persistent that government will raise tax. I reckoned this will happen. Sure, we have to raise tax to pay for current spending. Another way is to simply print! Here is why I believe strongly that we will print out way out of this despite what Mr. President or Mr. Geithner say.

Taxing.

It's easy to make an argument that our democratic government will favor taxing the rich and redistribute wealth to the poor. This argument is shallow in that, regardless of democratic or republican, their campaign are often funded by private entity which rely heavily on profits. Tax expense reduce earning and thus lead to lower contributions. I highly doubt that our congress men and women will like that.

Printing

Printing is a synthetic tax on the poor and the rich. The problem with this model is that, the rich tend to know how to protect against that. Monetary expansion or printing money usually lead to inflation. Mr. Bernanke insisted he won't be printing money. I hate to say it but I believe he has no choice. True be told, inflation is great for companies balance sheet. I'm not any expert on corporate balance sheet but I suspect that asset price increase during inflationary time even if profit remain stagnant. Debt or liability is typically a fixed cost to most companies. Given that cost are fixed and asset variable to the upside, we get a higher tangible book value!

The government probably has a good intention such as protect the poor. But note, these are not men and women who lives in our neighborhood. Their friends and neighbor are worth millions if not billions. Because their pin said "democratic" doesn't mean they will go after the rich. The stakes are too high.

After hearing my view, you can judge for yourselves what our government will do.

Art

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