December 26, 2012

Horse 1421 - Going Over The Fiscal Cliff

The deadline for the mythical fiscal cliff is less than a week away and Democrans and Republicrats still look like they are no closer to coming to any "solution". Personally I don't see why any solution needs to be made.

The basic problem that underlines the US Government is a continuous series of rolling deficits. Eventually the people who've you'd borrowed money from are going to want to have it paid back and with an increasing number of baby boomers starting to reach retirement age and moving into a period in their lives of dissaving, the call on that accumulated debt can only get worse. Nations like China also aren't going to want to keep sitting on debts that will never be paid.
New deficits require more borrowings on existing debt as well as new borrowings to cover the difference between receipts and payments. Although the analogy of the US Government borrowing on a credit card is hopelessly inadequate because most of the debt is actually held by itself and the American people in the form of US Bonds and Treasury Bills, it still poses a problem.

The Fiscal Cliff is supposed to be an automatic valve in the system, which automatically reduces spending, increases the rates of income taxes and eliminates some tax credits and write-offs. The point being to narrow the deficit gap, where legislation and budgetary measures can not. It therefore represents not a point of the unknown which the US Government was drifting towards but rather a point of begrudging inevitability.

Actually I think that the best proof that the US needs to go over the cliff and trigger spending cuts and tax increases, came from Republican Vice President candidate Paul Ryan during the televised debate with Joe Biden back on October 12.
 "We've had four budgets, four trillion-dollar deficits. A debt crisis is coming. We can't keep spending and borrowing like this. We can't keep spending money we don't have."
-Paul Ryan, October 12, VP Debate.

Although practically everyone agrees that the deficit should be cut (a surplus only exists in dreams), no-one can agree on the road that should be taken to get there. Arguing for spending cuts only, solves only half the issue, as does only arguing for taxation increases. Both of these are like trying to cut a ribbon with only one arm of a pair of scissors. The January 1 2013 fiscal cliff, answers both in a way that neither side likes.
Otto Von Bismark remarked that " the art of the possible". In this case it is the art of the obvious being obstructed by the obstinate.

Obama has frequently been hammered in the press for not achieving his goals and not coming to a solution on this. This conveniently ignores the fact that he is a Democrat president facing a Republican controlled House of Representatives. If there is anyone who should be blamed for the hostility of Congress, then it is the American people who through democratic process, collectively chose this outcome.
Since the American people chose to enlarge the government on issues like healthcare, it is perfectly fitting that the American people should also pay for it. America has a very long history of not paying for things, the very country was started over a taxation dispute which was in essence, Americans not wanting to pay for government services.

What the fiscal cliff also does is create a hard position of stability. The economic and accounting trickery which has been a feature of so many bills, pushing dates further back and bringing others forward, comes to a definite end.
It creates a date of certainty which means that if the Congress fails to do its job, then what's been glaringly needed to be done will be done automatically. It is almost bordering on a robotocracy except that the political machines didn't work in any sense.

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