Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Tax Rebate 2008 - United States Congress Resorts to Trickle-Up Irrationality

Economics / Credit Crisis 2008 Feb 29, 2008 - 12:34 PM GMT

By: Andy_Sutton


Best Financial Markets Analysis ArticleThe Roman poet Juvenal used the term ‘bread and circuses' to characterize palliative measures taken by the imperial Roman government to lure the populace into a state of blissful ignorance. This blissful ignorance comes at the expense of the solution of long-term societal problems, and arguably was a significant component of the end of the Empire.

Charles Fourier described his economic pinnacle a bit differently, opining that the oceans would turn to lemonade and roasted chickens would fly into our mouths. He used this amazing statement to describe a utopian socialism where the government was the ultimate provider.

Ronald Reagan became known during his first term as President in the early 1980's due to a term he coined called ‘trickle-down economics'. The idea behind it was that if you put enough money at the top that somehow, it finds its way to the bottom. As far as that goes, I'm still waiting for my few drops. Despite the obvious flaws, Reagan was able to make quite a bit of mileage from the phrase. What will come to be commonly regarded in the history books as the beginning of the great American hyperinflation, the Tax Rebate of 2008 has some distinct similarities as well as differences with Reagan's model of yesteryear.

Americans are feeling quite poor right now. Their homes have peaked out and the lights on the ATM have been shut off; in many cases, permanently. The $3 Trillion spending spree by and large is over. All that remains is the bill. And it is a hefty one. Ok, well scratch the home says the consumer; I've still got my stocks. Maybe. Stocks are still double-digit percentages below their 2007 highs while consumer prices have surged. By the way Ben, no one believes your 1.5-2% inflation target over the next 3 years. The purchasing power of the average portfolio has gone south like migratory birds for the winter.

Unabashed, the consumer puts down his brokerage statement and saunters over to the mailbox where there will surely be a credit card offer or two waiting. But alas, he says, the rates on these cards are unreal! I thought the Fed was cutting interest rates? The American consumer is certainly feeling rather poor right now. This is not dissimilar from the early 1980's after the massive rise in interest rates engineered by Paul Volcker. Most loans were out of the question for the average middle American, and he was still feeling pretty cleaned out from the inflation-ridden 1970's. He was feeling pretty poor too, but tax rebates weren't what the government had in mind.

The crux of the matter is demand. Demand, in and of itself is infinite. Anyone can want things. Most of us do. What keeps demand in check is production or what we are able to produce and trade to satiate that demand. The more we produce, the more we get to consume and vice versa. Any good central banker should know this. Most have chosen to forget it in favor of the spinoff line ‘if we print, they will spend'. In the 1980's, the plan was to put the money into the banking system and hope to trickle it down to consumers.While flawed, the plan was to encourage growth, resulting in more, higher-paying jobs. This would enable demand to be acted upon and stimulate the economy. To do this, however, we began our fateful journey into borrowing to enable consumption.

Moving to present day, little has changed. We are still borrowing to consume. We are still trying to find ways to enable consumption without production, and we have done so with credit and inflation. These dislocations, however, are getting to the point where they will soon be unmanageable, even as growth slows. To combat this, the United States Congress has resorted to the most desperate of measures; the direct monetization of demand. They are quite literally putting dollar bills directly into the hands of consumers in the hope that they make purchases to keep our economy ‘growing'. Now if the government had a large savings account that it could take the money from that would be one thing, but the very fact is that we don't the money. It will either be borrowed or created from thin air.

How patently absurd does this sound to you?

The problem is, that in the extreme short run, it is likely to meet its objective. People will feel richer for a time. They will go out and spend. If they were willing to mortgage their house to the hilt to do it why wouldn't they when it is ‘free'. The real danger in this is that people will begin to depend on these handouts and will start asking for another. And another. They will pressure their politicians to further overextend our country in the name of baseless consumption. In a way, it is inherent to our system of government that we would arrive at such an end. Clearly the idea of majority rule is desirable so long as the majority maintains a semblance of sanity and acts with rationality in the best interests of the nation. Clearly, that is not what has happened. We have embraced an ideology of trickle-up irrationality where society makes unreasonable demands upon elected officials who then proceed to trip over themselves to curry favor and reinforce society's irrational behavior. Who started it is of little consequence; the more sobering realization is that just like Juvenal's bread and circuses, it will end.

Editor's Note: For a more in-depth discussion of the ongoing financial crisis, please take a moment and listen to Andy Sutton's interview on the Contrary Investor's Café Coffee Break Series. The interview may be found at:

By Andy Sutton

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit

Andy Sutton Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in