OMG the Fiscal Cliff is coming!

7 thoughts on “OMG the Fiscal Cliff is coming!”

1. No need to worry about going over the cliff, we are already half way to the bottom, enjoy the ride.

2. Jeff is right, cut the military budget. The US spends as much in military spending as all the other countries in the world put together, including its allies. The US and its allies spend 80% of all military spending, 4 times as much as everyone else. Where are the enemies requiring this level of spending? Surely the US is not so insecure that it needs to spend more now than when it faced the massive conventional forces of the Warsaw Pact. If the US tailored its spending to a realistic assessment of the risks it faced it could cut that spending dramatically. But the MIC would not like that much...

3. Reversal of Bush tax cuts will have absolutely NO effect on the debt. In the month of October, we added 200 Billion dollars of debt. That is FAR greater than any tax increases can offset. The problem for you pro tax "the rich" folks is that you don't seem to understand that the problem is not with the amount of water flowing IN to the tub, it's the amount of water flowing OUT of the tub. Drastically slow the giveaway programs and you'll have your solution in my lifetime. Increase the tax rate on the small business owner (the "rich" people) and watch unemployment skyrocket!

   The reason military spending is so high is because we have had wars ongoing PLUS there are millions and millions of dollars worth of high tech equipment "needing" to be destroyed before we leave Afganistan. That's where your waste and spending is.

   For now; buy silver!!!

   1. Rich - It is not just about the rich paying their fair share, although that is important. It is also about having an economy that works.

      Funny you should mention the tub analogy. Rather than using it as a picture of government spending, thing of it as the economy as a whole. Dollars can move around and around between economic peers many many times, but when they fall into the hands of a billionaire they leave the active economy. Of course, they enter the capital pool, and that is a good thing at first, but remember that all dollars in the capital pool are competing with each other for return on investment. Ultimately, what return means in the end is purchases using consumer dollars. That means that if too many dollars leak out from the consumer pool into the capital pool, then interest rates go to zero, return decreases, and the investment part of ROI increases. Or another way of putting this is, ROI heads toward zero simultaneously in the stock and bond markets. As a side note, this explains why Stocks and bonds were inversely correlated when the consumption pool was healthy, after it spent the 30s recovering and until the 70s. Then stocks and bonds became correlated directly once the shrinking wages and increasing capital dollars became the dominant feature of the economic environment. Obviously when there is no additional return to be had and you are just adding more and more investments against shrinking capital opportunities, you don't actually get additional physical assets for those capital dollars. All you have is asset inflation even as normal every day goods are at near deflation levels. And there you have a simple description of what we are seeing today that only relies on a good understanding of supply and demand.

      By the way, $200k a year income is not rich. If you are earning that then every dollar you have has some chance of participating in consumption under the right circumstances, and it is not unfair to call all of the income that is not spent "deferred spending". On the other hand, if you make 200 million dollars, then your chance of spending on consumption at the margin is literally zero. The only possible outcome for the vast majority of those dollars is they join the capital pool.

      I would be in favor of increasing flexibility for carry-forward losses while treating capital gains as income. Also, a modest import tax, with any company paying the highest paid employee 20 times or more than the lowest paid employee would seem to be hitting an area of agreement between the rhetoric of conservatives and liberals. Both conservatives and liberals claim we need to give small businesses a fair shot while not overtaxing them, and neither is stepping up in public and saying billionaires have it too hard, so a tax like that shouldn't be controversial ignoring the free trade discussion, which is also a discussion that needs to be had, but not here.

      Anyway, the point is, we are being distracted by the "makers vs takers" argument, which sounds convincing at first, but fails to match up with what's really happening in the economy, and when you take the larger picture into account, then you can see why when Warren Harding, Calvin Coolidge, and Herbert Hoover made similar arguments, growth was modest, was accompanied by massive financial bubbles (swamp land investments in Florida and a bucket shop on every corner), and was followed by a massive crash when the loan/asset/bubble based consumption dried up, whereas under the new deal, the economy grew more in 12 years than under all the republican presidents of the last century combined (48 years) and in the post war years, you even started to see a lot of comfortable one-income families, which was a relatively new phenomenon since we all came up off the farms.

      1. oops!

         The tax example was supposed to be a trigger condition for multinational corporations to be considered importers. I left out a couple words in the description.

         Anyway, I guess I should summarize. I am all for inequality when it means someone making 200k a year has a lot more goodies than someone making 30k a year. We can build an economy out of that. But when a large percentage of our dollars are locked out of participation in the economy ever, except via loans that must be paid back, then you are risking a massive feedback loop and deleveraging of your economy at the next big bear market.

4. I am not that worried about the fiscal cliff:

   Reversal of the Bush Tax cuts. This is actually a good thing. The US needs the revenues.

   Decrease in defense spending by 10%. We are at least 10% higher than we were at the height of Reagan's massive military run-up in inflation-adjusted dollars. This is a much needed change.

   Expiration of various types of stimulus. This is bad, but it will be pretty easy to paint the real parties responsible.

   1. I am glad you let us down softly, I was beginning to believe the 100 plus commissions, 40 top economists and the GAO.

Comments are closed.