You know that age-old adage by everyone’s favorite British Philosopher and Statesman Edmund Burke: “Those who don’t know history are destined to repeat it?” Well I’m afraid we’re doing it again! So how did we get in this mess in the first place? From my point of view, it’s a lack of education and a failure to learn from the events of history. In order to make wise financial decisions throughout life, I think it’s critical to have an understanding of the evolution of our financial system. So, if you would like to brush up on your financial history, I recommend two books: The Ascent of Money: A Financial History of the World, by Niall Ferguson and The Stewardship of Wealth, by Gregory Curtis.
Curtis does a fantastic job of eloquently laying out what made the US the greatest country in the history of the world and what changes need to be made today to keep the US at the top. To sum it up, we can’t agree on a solution to the “fiscal cliff” because we’re disagreeing between two failed ideologies. Neither side can understand the view of the other because, to a degree, both approaches have put us in the position we’re in today. The Western civilizations have slowly deteriorated because the governments have unsuccessfully tried 3 approaches to evenly redistribute wealth in the following order: state-owned enterprises (mainly Europe – failed), increasing taxes on the wealthy (failed and will fail), and borrowing (failing horribly). If the answer to our problems isn’t obvious I won’t spoil the fun for you, go out and enjoy a good book!
On a side note, I find it amusing that we’re once again repeating history exactly 100 years later. Did you know that the first permanent income taxes were passed by Congress in 1913 by ratifying the 16th Amendment because they gained support of the masses (i.e. middle and lower class) by promising that it will only impose taxes on the wealthy? Guess how long that lasted… 100 years later we’re doing it again!
As for the markets, there has been a lot of talk about how resilient the stock market has been lately, just hanging around as we approach the “fiscal cliff.” I’m starting to see some internal signs of weakness however and I wouldn’t be surprised if the stock market took a little dip in the near future.
Happy Holidays and Happy New Year!
Nick