Well, Guess What? The World Did Not End with the Last Entry on the Mayan Calendar

How about that?

I remember seeing the calendar when visiting Tikal, a monumental testament to a civilization that collapsed by over-taxing its resources.   After the collapse Tikal was abandoned for centuries.  Nature overwhelmed the city with tropical vines, trees, and shrubs.  To the eye, a canopy of green growth replaced Tikal.  Centuries later, the ruins of Tikal were discovered under the sea of green, and the excavations commenced.  Tikal is a wonder of antiquity worth seeing if you can get to Guatemala, and we strongly suggest a visit.

Some day, centuries hence, our grand experiment with democracy may face the fate of Tikal.  We call that experiment American politics, and we watch it now in real time.  It used to look like the movie depiction in Lincoln. To get a glimpse of how and why the US House of Representatives works, see this wonderful, five-star movie.  Thoroughly researched for historical accuracy, its stellar performances reveal the character of Abe Lincoln and the turmoil and success that immediately followed Lincoln’s re-election.

Juxtapose this history to our present circumstance, and the contrast is remarkable.  Obama is a re-elected president.  Like Lincoln’s, his opposition is in the House.  In the year preceding Lincoln’s reelection, the Senate had already passed the 13th Amendment.  Today’s Democratic party is the opposite of what it was when Democrats were trying to preserve slavery and avoid passage of the 13th Amendment to the US Constitution.  At the time, Republicans were the new political force and majority.  They lost (in 1856) their first attempt for the White House with Freemont.  They won their first national power with Lincoln’s first term.  They were re-elected with a majority while the country was engaged in the Civil War and while thousands of American suffered and died.

After Lincoln came the period of reconstruction. Illegalized, slavery ceased, but racism gave way slowly.  In some places in the United States, it is still giving way slowly.  But the country survived, and the political forces which govern us solidified.  We continued to flourish, to defend ourselves in war, and to create a system of social safety on which we currently rely.  We started to tax more heavily to pay for that safety.  In doing so, we concentrated power in Washington and removed it from the hands of the states.

It was President Lincoln who first passed the law to tax income in 1861.  That first tax was replaced with a different form of income tax in 1862.  In 1913, at the time of the creation of the Federal Reserve, the top income tax rate was 7%.  I will leave the rest of this history to serious readers who want to find it and study it.

To paraphrase the great oration of Lincoln, now we are engaged in a great national debate, determining whether this nation can balance the tension between funding the safety net and taxing income and wealth.  We all agree that we cannot tax 100% of income and wealth because we will obtain zero when we do.  We also agree that some safety net is a necessity of modern society.

We just witnessed the horrors that occur when young people in our society fall through the safety net and act in a deranged manner.  Guns will again become the focus of a huge national debate.  Query: will that debate address the lack of funding for the safety net that might have caught Lanza and prevented this mass murder?

In our view, the fiscal cliff issues will eventually be resolved.  A middle ground will be found.  Alternatively, one side will be sufficiently wearied by the political fight and the other side will find the ways to achieve sufficient votes to pass legislation.  Lincoln did it.  The Obama-led Democrats and the Boehner-led Republicans will do it, too.

We wish our readers a merry Christmas and a celebratory New Year.  We believe a political resolution will prevail because it has to.  To paraphrase Lincoln again, the nation will endure and its political character will remain intact.

BTW, markets will like it.  Part of our American culture is the private sector and the application of capital investment.  The US stock market is under-owned.  We reached our target range of 1450-1550 by yearend.   We are fully invested.  We base that viewpoint on the assumption that any trip over the cliff is temporary.  Next stop is 1600 by the middle of Obama’s second term and 2000 on the S&P 500 index by the end of the decade.  Low inflation, low interest rates, and a slow (but gradually accelerating) recovery are all ahead of us.  Housing is recovering in over 40 states; it was deteriorating in over 40 states just three years ago.  Our current account deficit has been shrinking from its peak several years ago.

America is mending in its own volatile and erratic way.  You can bet on it.  We are.

About David Kotok 42 Articles

Affiliation: Cumberland Advisors

David R. Kotok cofounded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in economics from The Wharton School of the University of Pennsylvania, an M.S. in organizational dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a masters in philosophy from the University of Pennsylvania.

Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron's, and other publications. He is a frequent contributor to Bloomberg TV and radio, CNBC TV programs, Fox Business, Yahoo Finance and others.

Mr. Kotok currently serves as a Director and Program Chairman of the Global Interdependence Center (GIC) (www.interdependence.org), whose mission is to encourage the expansion of global dialogue and free trade in order to improve cooperation and understanding among nation states, with the goal of reducing international conflicts and improving worldwide living standards. Mr. Kotok chairs its Central Banking Series, and organized a five-continent dialogue held in Philadelphia, Paris, Zambia (Livingstone), Hanoi, Singapore, Prague, Capetown, Shanghai, Hong Kong, Rome, Milan, Tallinn, and Santiago, Chile. He has received the Global Citizen Award from GIC for his efforts.

Mr. Kotok is a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), serves on the Research Advisory Board of BCA Research, and is also a member of the Philadelphia Council for Business Economics (PCBE).

Mr. Kotok has served as a Commissioner of the Delaware River Port Authority (DRPA) and on the Treasury Transition Teams for New Jersey Governors Kean and Whitman. He has also served as a board member of the New Jersey Economic Development Authority and as Chairman of the New Jersey Casino Reinvestment Development Authority.

Mr. Kotok hosts an annual Maine fishing trip, where, it is rumored, most of the nation’s important financial and economic decisions are actually made.

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