"Fiscal Cliff" - Increasingly Likely & Desirable?

The debate is really over who will pay the bill. Neither side will desert their base.

The Budget Control Act of 2011 was enacted as a compromise to resolve a dispute concerning the public debt ceiling. Deficit spending previously appropriated by Congress was bringing the federal government's total debt close to the statutory ceiling. Republicans in Congress refused to approve an increase in the ceiling unless there were deep spending cuts. The Budget Control Act included an immediate increase in the debt ceiling, along with a mechanism for facilitating two additional increases. It also provided for automatic spending cuts to begin on January 2, 2013.
[link to en.wikipedia.org]

As you know, the "fiscal cliff" is a $600 billion combo of tax increases and spending cuts which will take effect in January, and lead to a recession.

There is no way to avoid going "over this cliff " except to tear up the Budget Control Act and kick the problem down the road.

Even then, the GOP would have to agree to raise the debt ceiling.

One way or another, the Piper has to be paid. $600 billion has to be raised.

There are many ways to do this. Eliminating the mortgage interest deduction is an obvious one. This deduction is unique to the US. A valued added sales tax is another example.

But there is no time for such bold action and both sides are digging in.

DEFLATION

One way or another, an annual 600 billion will come out of the economy.

The debate is really over who will pay this bill: The people who voted for Obama or the people who voted for the GOP?

Neither side will sacrifice their base so I predict that the fiscal cliff may look more attractive as December 31 approaches. It is the only thing Congress has managed to agree on so far.

Both sides appear to suffer equally. Both sides can blame the other. The most egregious injustices can be addressed later.
[link to www.henrymakow.com]
The result will be a drop in the stock market and precious metals, until people realize that the world has not ended. Then, it will be pretty much business as usual with confidence in the US dollar restored. (See deficit graph at right)

All over the world, the central bankers are demanding that countries rein in spending. "Austerity" is the watchword. The result will be deflationary but perhaps not horribly so. People will suffer but perhaps the US economy will be stronger in the long run.

"Slower economic growth is the "short term pain" required to establish the stable economic foundation from which "long term gains" may be achieved," writes one commentator.

Another commentator argues that the fiscal cliff is the bitter medicine America needs to get its debt under control:
[link to seekingalpha.com]

"I think that the only way to move toward fiscal discipline is to jump off the fiscal cliff in January. The CBO says that the economic impact would be a mild recession in 2013, followed by resumed growth. That strikes me as a very small price to pay for cutting the deficit in half, limiting future deficits, bringing down the debt ratio over the next decade, re-establishing the AAA ratings and laying the foundation for future prosperity."

FINALLY

Currency is a mode of exchange and, like the air we breathe does not belong to anybody. In an ideal world, a government would be able to issue as much as necessary to make the economy run smoothly. It would not be a debt to anyone and "sovereign debt" would not be an issue.

Alas, we have been brainwashed to accept the current situation where private Masonic families control government credit.
[link to www.henrymakow.com]

As long as we do, we will all suffer the consequences.

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