Hello fellow babypip members. I haven’t been on the forums in a while but I’m back. I have been reading some articles regarding the “fiscal cliff.” From what I understand the fiscal cliff is referring to the expiration of numerous tax cuts which according to CNBC will affect 114 million families with a $1,600 tax increase (the article I am referring to was posted today). Someone told me that those in the armed forces might not get paid if congress doesn’t pass the bill to extend these tax cuts. He also stated that the government is going to have to cut 2 million government jobs as well. Is this true? Can someone shed some light in laymen terms what kind of impact the fiscal cliff is going to have on the economy and the effect it will have on the USD? Is it likely congress isn’t going to do anything and let these tax cuts expire? Thanks.
That’s pretty funny. All hell is going to break loose is all i can get from watching that. Maybe i need to ask a different question. Assuming the fiscal cliff occurs what would be the most likely chain of events to occur? How long of a time frame do we have before we notice the effects?
I didn’t mean to give you a glib answer, and then leave you hanging. I really expected that other members would join in this discussion, and offer some serious answers to your questions. But, since they’re busy doing other things…
Here’s my (brief) take on the “fiscal cliff”, and on the most probable scenario for our economy in the very near future —
Democrats and Republicans in Congress, and the president, are all playing an elaborate game of “chicken”, because they still have some time before they actually have to [B]do[/B] anything. All of their arguing involves whether to raise certain taxes, whether to cut certain spending, or whether to do some of each.
When they get down to the “eleventh hour” (probably in December), they will cobble together some sort of stop-gap measure which will keep us from following Thelma and Louise over the cliff. Do not expect them to have the good sense, or the courage, to deal with a long-term solution to U.S. insolvency (which is really what this is all about).
If their stop-gap measure involves raising [B]some[/B] taxes, and/or cutting [B]some[/B] government spending, then people affected by those particular taxes, or those particular government programs, will be hurt to varying degrees. I expect that only a small percentage of the population will be severely impacted by whatever Congress throws together, and Obama signs, in December.
It has been estimated by the CBO, and others, that if all the elements of the “fiscal cliff” were allowed to play out early next year, the result would be that U.S. GDP would be negative for most or all of 2013 — in other words, the U.S. would dive right back into “recession”, defined as 3 consecutive quarters of negative growth, and we would probably drag the rest of the world into recession (or depression) as well.
At the other extreme, if all the soon-to-expire tax cuts were to be extended (so that nobody’s taxes would rise), and if all the programmed spending cuts were to be postponed, then GDP would not take a hit, but the looming threat of U.S. insolvency (total economic chaos) would be even closer to our door.
Both extremes scare the Ruling Class (Congress and the Obama regime). That’s why I expect that they will agree on some sort of half-way measures, in order to push insolvency a little further into the future, while minimizing the immediate damage to GDP.
A family way over their heads in debt is not a perfect analogy to the current situation in the U.S. government, because a family can’t print more money for themselves, while the U.S. government can do precisely that. However, there are some similarities between a dangerously indebted family and our dangerously indebted U.S. government.
If that family has annual income of $100K, annual spending of $150K, and nearly-maxed-out credit cards with an aggregate balance of $500K, it doesn’t take a PhD in finance to determine that drastic changes will have to be made, or this family is going to hit the wall. In simple terms, this family is faced with two choices: make painful cuts in their standard of living, or face certain bankruptcy.
This country faces the same two choices. Our national “credit cards” are much more complex than the credit cards of the hypothetical family. But, we have just about maxed them out.
Ruling-class types, who want to keep their cushy jobs, won’t make the hard decisions to get this country’s fiscal house in order, because they don’t want to be responsible for (temporarily) devastating the American standard of living. On the other hand, they are even more frightened by the specter of impending national bankruptcy than most citizens are, because they (the ruling-class types) know more of the scary details about the insolvency they have spent us into.
While these geniuses are figuring out how to put more Band-Aids on our gaping wounds, Greece and Spain and Italy may preempt the whole show. If Europe comes apart at the seams, then we will probably follow them down the toilet. And if that happens, then the “fiscal cliff” won’t matter anymore.
Sounds pretty gloomy, but it was a great read. Sounds just like congress to procrastinate until we are nearly castrated. If only we didn’t have a two party system that’s constantly bought out by lobbyist maybe this wouldn’t have happened. But then again overspending happened on every level not just the government. It sucks knowing that even an independent can’t turn this country around unless we had in independent run congress as well. I have lost hope in politicians. Why trust glorified liars with the fate of our country? I guess we don’t have a choice huh?
Great clip clint. As always your explanation is top notch. You snagged me with entertainment, but got me to read that wall of text. Good job though explaining these more complex questions. Cheers