The Fiscal Cliff

[McBain]

What does it mean, exactly?

I keep seeing it flying around and I see pictures of Obama sort of glumly sniffing his papers on some Lectern. From what I think it means, or from what the moniker depicts, is that the US is heading for some kind of financial depression?

Now this is not Political, or Religeous, and if anyone mentions Guns, you're gunna get Biffed.

 

[Del]

The fiscal cliff is a $600bn (£369bn) package of tax rises and spending cuts that is due to come into effect in January unless new legislation is passed. The cross-party Congressional Budget Office has calculated that if the "cliff" is implemented in full, it will knock more than 2% off GDP in 2013, turning what would have been a solid recovery into recession. And since the US remains the world's largest economy, a slump on that scale – and resulting collapse in business and consumer confidence – could spark a worldwide downturn.

So severe are the consequences of failure that it seems impossible to imagine that the Democrats and Republicans, locked together in fraught negotiations, can possibly allow the US to tumble over.

 

[Clint Planet]

The fiscal cliff is a $600bn (£369bn) package of tax rises and spending cuts that is due to come into effect in January unless new legislation is passed. The cross-party Congressional Budget Office has calculated that if the "cliff" is implemented in full, it will knock more than 2% off GDP in 2013, turning what would have been a solid recovery into recession. And since the US remains the world's largest economy, a slump on that scale – and resulting collapse in business and consumer confidence – could spark a worldwide downturn.

So severe are the consequences of failure that it seems impossible to imagine that the Democrats and Republicans, locked together in fraught negotiations, can possibly allow the US to tumble over.

Now here's Bob with the weather.

 

[McBain]

Thanks Del, so where did the $600bn 'package' come from? Why don't they just avert disaster by not implementing the changes?

 

[roydo]

It is a bit of a smokescreen in reality. Putting the tax rises/spending cuts in some perspective, the same result could be gained by the US suspending military operations for 3 months a year. The over riding issue which underpins the US economic policy is to protect 4 massive banks, who between them, hold about $300 TRILLION of potential liabilities. If either of those goes pop, then they/we have a real problem..........

 

[Clint Planet]

4 massive banks, who between them, hold about $300 TRILLION of potential liabilities.

Which works out at very nearly $1M per man, woman and child in the USA. Jeez.

 

[McBain]

300 Trillion x 4 = 1200.......Bajillion?

I looked it up its Quadrillion.

 

[roydo]

Its a lot either way!

 

[Caveo]

Dont ask me why but it sounds dirty to me.......most things do

 

[blue61]

I thought the fiscal cliff was something Julian Clary fell off when he met Norman Lamont.

 

[johnnydawg68]

Thanks Del, so where did the $600bn 'package' come from? Why don't they just avert disaster by not implementing the changes?

It came from the last budget negotiation. It was supposed to be the poison pill that had things neither side wanted to force them to come up with a long term solution. It's not going to work. Republicans won't vote for a tax increase even if it's only on millionaires. So what will happen is the tax rates will go up on everyone, and then after the first of the year, they can vote to cut rates on everyone below a certain level (yet to be determined), which will be more politically palatable for the republicans. Same goes for the spending stuff for the democrats. It's not a big deal if they work something out in January. If they don't we'll head back into recession.

 

[evilwebby]

The US and all the Western economies are essentially insolvent.

The fiscal cliff deal is just an agreement to raise the debt ceiling in exchange for promises to raise taxes and reign in (future) spending. Of course it won't work out that way - when the future comes around they'll just negotiate another deal to push the cuts even further out and carry on raising the debt ceiling. That's how they've got their so deep into this mess in the first place.

It's all crazy Keynsian stuff, where spending borrowed money that you can never pay back is somehow counted as real growth and productivity.

One day they won't be able to push it off any further and on that day something very fundamental will happen - the West will have to live within their means, and the developing countries will no longer be subsidizing their excesses. It will happen - there's no way it can't happen, but it probably won't be next week.

 

[orchard]

Thanks Webby, sure it's `Keynsian stuff' though? Genuine question like. How will sticking one's head in the sand 'til Peak Oil's undeniable pan out ?

 

[Woolly Blue]

Wasn't Fiscal Cliff the postman in Cheers ?

 

[evilwebby]

Thanks Webby, sure it's `Keynsian stuff' though? Genuine question like. How will sticking one's head in the sand 'til Peak Oil's undeniable pan out ?

Yes, definitely... deficit spending is all modern neoclassical/Keynesian/callitwhatyouwill doctrine.. the assumption that you can "manage" the economy through active monetary and/or fiscal policies.

Unfortunately even if it worked (and there is plenty of evidence that it doesn't), they forget that it eventually has to be paid for, and so the game then becomes doing anything and everything to keeping the ball in the air to keep the show going, regardless of the damage that it is building up for the future.