But sooner or later the economy will recover. When it does, figure inflation to kick in–the Federal Reserve has poured $1 trillion or so into the financial system just since September, according to Shilling. Also expect taxes to go up, just as President-Elect Obama has promised.
Inflation and progressive taxes are a toxic brew. We haven’t heard the phrase “bracket creep” since Ronald Reagan ran against Jimmy Carter in 1980. Reagan knew that middle-income Americans were being inflated into higher tax brackets designed for the rich and were feeling mightily annoyed about this.
I predict the 1970s will play out again.
Of course, Karlgaard is just talking about the domestic economy. Left unmentioned is what other countries will do, watching the US in late-’70s reruns. The last time we had a tax revolt, we also had the Soviets marching up and down Africa and through Central America. What might Radical Islamists — lacking the restraints forced on the Soviets by our nuclear deterrent — get away with over the next four years?
Left to its own devices (and good luck with that!), the economy can right itself. But war is hell.