Don't Give Up on Capitalism, Fix It

All of this would be so much better than raising taxes or more federal spending. The federal government should not raise taxes during the worst economic crisis in 80 years. If anything, it should be figuring out how to lower taxes by finding ways to eliminate unnecessary and wasteful federal spending. Medicare would be a good place to start. This is an enormous boondoggle that is a transfer from poor working people to relatively wealthy retirees. Yet, you will never hear a politician talk about cutting Medicare because that is bad politics.

Another area to cut would be corporate welfare, but you also rarely hear about that because the lobbyists pay the politicians to keep quiet about it. Obviously, getting out of Iraq would also save a large sum of money that could be allocated for pro-growth tax reduction or spending initiatives.

The point is that you don't fix an economy by taking money from the pocket of somebody who earned it, funneling it through Washington and sending some of whatever is left into somebody else's pocket who didn't earn it. This is a failed concept.

So what is an investor to do in this environment if things continue in this direction? Buy municipal bonds with relatively short maturities to control for the risk of future inflation and benefit from probably higher tax rates. Buy some gold also to hedge against the potential collapse of the world currency system if people lose faith in the dollar as the reserve currency.

Keep a substantial amount of cash or cash equivalents in order to have liquidity available to take advantage of severely depressed asset prices in stocks, real estate and risky credit products (such as high-yield bonds, convertible debt, leveraged loans, lower-than-AAA-rated commercial mortgage-backed securities, collateralized debt obligations, et. al) as well as to possibly take advantage of much higher short-term interest rates in the future if they become necessary to support the dollar.