In response to a post from my good friend Doug Hartlove (www. http://www.returntoexcellence.net/), I state that the US may be seriously debating the Fair Tax (FT) in a very serious way come Q3 2011.
Pass this year?
U.S. financial circumstances may present a FT opportunity Q3 this year. How?
1 – US requires additional $4-5 billion per day to finance its debt
2 – Federal Reserve has been financing perhaps as much as $4 billion per day since November 2010.
3 – Private estimate US consumer inflation range from 6% to over 10%.
4 – US main creditors (besides Fed) China and Japan are in process of decreasing their US treasury holdings
5 – IMF and G20 are actively assessing alternatives to the $ as global currency
6 – S&P lowered their expectations regarding US debt risk
7 – Odds are low that Congress will pass a deficit reduction measure as part of debt ceiling extension that will increase the confidence of our creditors and the IMF/G20 in the risk of investing in US Treasuries.
8 – Fed repeatedly states that it will stop printing $’s to purchase US Treasuries (end of QE2) June 30.
If 7 and 8 occur, expect the 10 year Treasury Bill to jump from 3 ½ % to over 6% in a week. Without the Fed, interest rates will automatically go up to reflect real inflation with pressure to jump to over 10% week 2 given risk of poor returns (per falling $) or outright default.
The first few days of such a scary but very possible crisis may result in an emergency session of the world’s (yes – G20 and IMF) involvement in addressing a high probability of a $ collapse. Here is where the FT may present itself as a significant and immediate measure to stabilize the $. How:
A – via 0% federal corporate tax rate, position the US overnight as an entrepreneurial friendly haven. Foreign and domestic investors and venture capitalists would plan to take advantage of this; hence $ would stabilize.
B – save $450 billion per year (reference: economist Art Laffer) due to abolishment of the IRS. That $ reducing the debt will result in more private entrepreneurial opportunities.
A & B may then prevent an economic Armageddon and offer the US with another opportunity to fix its financial house. This would entail cutting bloated government and privatizing bankrupts entitlements.
Let us then make the case positioning the FT as a serious 2011 alternative.
For more details about threat of US Dollar collapse please read my review of Damon Vickers Jan 2011 book “Day After the US Dollar Collapses” https://economics501.wordpress.com/2011/01/