The Fiscal Cliff: Buy, Hold or Sell?

If you’re an investor, a saver, a small business owner or simply a person getting by on a fixed income, how does it feel to be in “free fall?” How does it feel losing your sense of control, wandering into an uncertain financial future, wondering what you should do next? The “fiscal cliff” is affecting every investor and every entrepreneur, and leaves our fragile economic recovery vulnerable.

The view, from the top of the “fiscal cliff,” had been foggy at best. But, high ground is preferable in this war on success. Nevertheless, as we descend from the cliff, falling — falling to perhaps a crisis or another recession — that sense of anxiousness and the all too familiar memories of the Great Recession come rushing back, reminding us of how frail our national psyche really is.

The financial markets began falling as the nation took a leap of faith on a second term for the President. Has it been a normal market correction or a harbinger of things to come? With 30 days to go, it seems leaders have squandered weeks as though they expect a last-minute rescue as the rest of us simply watch and wait.

Buy, hold or sell, it seems as though everything is speculative. Investing in stocks, bonds, currencies or gold all seem plausible — all seem appropriate, depending on a certain outcome to the “fiscal cliff.” However, make no mistake: doing anything, including staying in cash, has a higher level of risk than it should be or has to be. This is a created crisis that holds investors hostage. It keeps capital on the sidelines, and becomes just one more instance of misallocating resources healthy economies need to thrive and prosper.  Ironically, economic growth is the only way out of this mess, and yet Washington seems blind to the obvious.

As serious as the “fiscal cliff” may be, what’s more troubling, and perhaps more ominous for our economic future, is the growing debt crisis and the Federal Reserve’s expansion of the money supply in ways history can show no precedence. This massive expansion of the Fed’s balance sheet, a grand monetary experiment, defies common sense and is a hypothetical being presented as a fact.

What is historically true is that nations that choose to paper over their national debt, with freshly printed money, have in every occasion seen a significant devaluing of their currency.

The long-term consequence of “monetizing” the national debt is serious with little doubt of inflationary implications. The Federal Reserve, by implementing QE3, has launched an attack on “sound money.” This is a violent act of monetary subversion designed to be the magic elixir for the anemic economic conditions facing the country.

If you believe that quantitative easing is not inflationary, why not have the Federal Reserve expand their balance sheet by $16 trillion, eliminating the national debt? If you understand and believe you can’t just do that, why is it acceptable to do this monthly in smaller amounts?

The massive QE being implemented by the Federal Reserve is indeed a “grand experiment.” It is a theory that I’m afraid may look good in academia, but is dangerous when implemented in the real world.

America and Americans are resilient people. So often, I believe we vastly underestimate the power of freedom, and specifically economic freedom. As we are seeing in Washington, democracy is not always perfect, but it’s the best game in town. Remember, even Wile E. Coyote lives to fight another day. Beep, beep!