Fiscal cliff?

Conmaicne Mara

What is it exactly? I keep seeing mention of it.

KyussBishop

I made a thread related to it a little while back, here:
https://www.boards.ie/vbulletin/showthread.php?t=2056803853

If I recall correctly, it is a set of automatic spending cuts that congress agreed upon in August last year, that is due to occur at the start of 2013, unless either 1: government spending is cut, or 2: the bill is repealed and nothing happens.

It is a totally artificial political problem (i.e. it is a made-up problem, in order to allow political rhetoric for justifying cuts), that can be made irrelevant by repealing the bill from 2011, but it is being used as a back-door excuse to unnecessarily gut social security, and enter into austerity policies.


If cuts are allowed to happen (i.e. if it is not repealed), then it will see the US slide into austerity and into recession, having the knock-on effect of harming the rest of the worlds economies as well, prolonging the economic crisis not just in the US, but in the rest of the world too.

SupaNova2

Sal Khan explains:

https://www.youtube.com/watch?v=lV3LBiivTxw

Manach

It does seem to have trigger a minor civil war within the Republican party, whilst even within the Democratics there have been voices like Howard Dean in favour of the fisal cliff been met.

KyussBishop

The weird thing about the Republicans in this, is that the Democrats seem perfectly willing to enter into cuts, so the Republicans win either way as well, since there is bi-partisan consensus on this issue; since they're both looking for cuts, I haven't kept up on the per-party arguments, but I think the Republicans are looking for extended tax cuts for the wealthy, and other similar stuff; but for reasons which are probably more related to the election loss, the party is partially imploding and there's some reordering being done.

The only definite losers in this are the wider US population, unless the bill gets repealed.

Be like Nutella

There'll be some kind of agreement, maybe not in time... probably not in time but by end of Jan.... there has to be! bondholders need to get paid no matter what!! The US is too big to fail and not coming to an agreement which allows them to increase the debt ceiling and come up with a balanced trajectory towards lower spending and decreased unemployment while maintaining decent salaries (although prob a bit less than recent years) - is not an option. We're way past partisan ideals here. Both sides are going to agree to things they said they never would and everyone is going to seem like a hypocrite, Obama included. They got themselves into this mess by putting far right and left party ideals ahead of greater society since Clinton's time. They can't grow their way out of this problem quick enough so a BIG plan is needed that does some BIG things very soon and plans a curve which ends in lower spending on everything.... absolutely everything... healthcare, smaller government and military spending... no silver bullets... no big wins for either side... a bland kind of dull sort of agreement which doesn't go half as far as each side would like. And whatever it is has to be agreed on for the long term and written in stone to a certain extent to increase investment confidence which is what the entire US economy is based upon - an idea... a set of economic values which has brought the US to such great heights even now in these conditions the inherent values within the US economic make-up are still way stronger than anywhere else on earth even with their huge debt and other issues ANY OTHER NATION WOULD BE DELIGHTED WITH THEIR STRENGTHS AND WEAKNESSES.. this agreement is just about righting the ship intelligently and assuring investors in the US economy that the good times will be back... just like before and that the US will be less brittle and vulnerable to massive swings and as hopeless as congress has seemed to be they will reach an agreement and right their ship... and growth over the next 5 years or more will take care of the rest. All the rest is just posturing and drama and political gamesmanship. End of Jan latest, mark my optimistic words!

Duck Soup

Some Republicans have put their heads above the parapet and have said that they are willing to take tax increases as part of a deal to avoid the fiscal cliff. As most people know, this brings them into direct conflict with the tea party base and the pledge that Grover Norquist gets them to sign that they will never, never, never raise taxes (how that's meant to work once the huge demographic tranche that is the Baby Boomers are all retired, I'm not sure).

But now it appears that all the Republicans have gone home - Obama's already back in Washington - and won't be back until the New Year. Not all the 'fiscal cliff' measures (huge cuts in defense and non-defense spending, plus the expiration of the Bush tax cuts) will take effect at once, so it's really a Fiscal Slope.

Then I hear the explanation for this. Republicans, particularly in the House of Representatives but also some in the Senate, don't want to be seen voting for a tax increase. Sooooo......if they let the fiscal cliff measures kick in automatically, tax rates go up without a vote. They can then reach a deal later in January, where they are voting to "cut taxes" (i.e. restore the tax cuts) for middle class Americans. A deal is reached and they get to say that they voted to cut taxes, not raise them.

It would be surreal if it wasn't so stupid.

Alibaba

What a complete mess this whole 'fiscal cliff' issue is.

Both sides grandstanding waiting to see who blinks first.

A lot of these US senators willing to risk recession just when the US economy was starting to grow.

President Obama hasn't covered himself in glory either.
IMO he seems completely incompetent.

A complete shambles system of Government and I thought our crowd were bad !!

Alibaba

Kicking the can down the road !

No leadership at the highest level in the US Government .

God help the rest of us when it all comes crashing down..

Mr.Micro

Alibaba wrote: »

Kicking the can down the road !

No leadership at the highest level in the US Government .

God help the rest of us when it all comes crashing down..

Who is going to tell the American people that they have been living beyond their means for years and its got to stop? Imagine the adjustment from excess to moderation.

clairefontaine

Does everyone get to keep their Obama phones?

Amerika

clairefontaine wrote: »

Does everyone get to keep their Obama phones?

Yup. And I get to keep paying for them… with the larceny tax "thoughtful and considerate gift" tacked onto my phone bills.

Alibaba

Mr.Micro wrote: »

Who is going to tell the American people that they have been living beyond their means for years and its got to stop? Imagine the adjustment from excess to moderation.

Point taken.

But somebody has to.

President Obama was elected to lead and doesn't seem to be doing a very good job at that.

The Republicans seem to be holding the entire country to ransom with their intransigence and unwillingness to co-operate with anything.
All they seem to be interested in is looking after their millionaire/billionaire friends.

And all the while the country is slipping deeper and deeper in debt and nobody seems to be doing anything.

KyussBishop

The US is country with sovereign control over their own (fiat) currency; their spending is limited only by the potential for inflation, so they are not "living beyond their means". With 'platinum coin seigniorage' they don't even need to match spending with national debt.

Mr.Micro

KyussBishop wrote: »

The US is country with sovereign control over their own (fiat) currency; their spending is limited only by the potential for inflation, so they are not "living beyond their means". With 'platinum coin seigniorage' they don't even need to match spending with national debt.

So all that debt that the US owes China and other countries means what, and what is all the fuss then about the fiscal cliff? Somebody has been partying.

http://www.davemanuel.com/so-how-much-money-does-the-us-owe-to-china-85/

http://www.defeatthedebt.com/understanding-the-national-debt/how-much-do-we-owe/

KyussBishop

The national debt is just the US giving dollar holders an interest-bearing place to put their money; spending through money creation is actually less inflationary than matching that spending with debt, because of the interest payments on the debt.

SupaNova2

KyussBishop wrote: »

The national debt is just the US giving dollar holders an interest-bearing place to put their money; spending through money creation is actually less inflationary than matching that spending with debt, because of the interest payments on the debt.

Not sure what you are trying to say, that debt creation is more inflationary than creating money without debt?

KyussBishop

Ya, the interest on the debt leads to a greater amount of money in the economy over time, and the debt financial instrument itself allows leverage too; here's a comparison of debt vs platinum coin seigniorage (i.e. money creation):
https://farm9.staticflickr.com/8359/8278730043_d023a21d83_b.jpg

SupaNova2

Ya, the interest on the debt leads to a greater amount of money in the economy over time.

How so, interest is not created with principle?

If $100 dollars is loaned into existence how is that more inflationary than $100 just created and spent. When it is loaned into existence, productive effort is required in order to pay the loan back with interest, and the principle is extinguished as the loan is repaid, both have a deflationary effect that isn't present if we just create and spend money without debt attached.

KyussBishop

SupaNova2 wrote: »

How so, interest is not created with principle?

If $100 dollars is loaned into existence how is that more inflationary than $100 just created and spent. When it is loaned into existence, productive effort is required in order to pay the loan back with interest, and the principle is extinguished as the loan is repaid, both have a deflationary effect that isn't present if we just create and spend money without debt attached.

At the government level, no productive effort is used to pay the money back, productive effort is held back to pay it back; if sustaining government bonds requires the government to run at less than full employment, it is removing productive effort from the economy.

Anything that causes unemployment to be less than 100% at any given time, removes productivity from the economy, because if you run at 80% employment for a year (with the associated loss of productivity), you can't run at 120% employment the next year (to regain the lost productivity); all it does is cause a 20% loss in employment for a year, before 100% is restored, thus completely wasting potential productive effort.

When you create money to fund government spending, $100 goes into the economy; when you borrow money, $100 goes into the economy, plus the interest paid on the debt, and the financial instrument for the debt itself is tradeable and worth something; when you pay that debt back, you have to dampen productive effort in the economy (causing economic problems) by running a surplus.

SupaNova2

KyussBishop wrote: »

At the government level, no productive effort is used to pay the money back, productive effort is held back to pay it back; if sustaining government bonds requires the government to run at less than full employment, it is removing productive effort from the economy.

The productive effort of citizens is taxed to pay back national debt.

KyussBishop

When you depress citizens spending power through taxes, to the point that it causes unemployment in the wider economy (due to the fall in aggregate demand), that increase in unemployment prevents production from happening.

SupaNova2

KyussBishop wrote: »

When you depress citizens spending power through taxes, to the point that it causes unemployment in the wider economy (due to the fall in aggregate demand), that increase in unemployment prevents production from happening.

Well this gets back to the point of debt being productive, if government debt was productive in stimulating the wider economy its tax revenues would rise without it having to increase tax rates or the tax burden on its citizens. The problem is not debt in itself but unproductive debt. Going into debt to sustain a lavish bubble time level of spending is not what anyone would consider productive debt.

KyussBishop

Well, it's the paying down of the debt that is the primary unproductive part though: Government needs to remove more money from the economy than they put in, to pay back the national debt (which depresses aggregate demand and causes unemployment, if you do it too fast), and if you extinguish the entire national debt in this fashion, most of the remaining money in the economy is sourced from credit by the banks, which isn't a sustainable way to run the economy (as our current economic crisis, sourced by a credit boom, shows).

All money in the economy, originates either through government debt, government money creation, or bank credit (with a matching debt); the rest is just money recirculating through the economy.

When you remove all money in the economy, originated from national debt, you're left with bank credit (and debt) and money sourced from money creation.

SupaNova2

I agree that a collapse in money supply would be destructive and I agree uncontrolled unproductive bank credit will result in a severe bust. And I think we agree that unproductive government debt will not help. A surprising amount of agreement.:)

KyussBishop

Heh Ya I don't think these views on fiat money are entirely incompatible with Austrian views; Bill Still, for instance, is a Libertarian promoting very similar views towards money.

Blue Magic

People can say what they about Obama but this is true...

RandomName2

I'm highly confused by the reporting of this:

To what extent was Republican opposition motivated by the lack of spending cuts by the Obama administration, as opposed to its opposition to tax increases?

CollardGreens

Actually....it's a drinking game here in America!

Every time we hear the words "Fiscal Cliff" we get to take a drink. The whole country has been waisted drunk for 2 months now!

rockonollie

I love the new suggestion......lets make a $1 trillion platinum coin........deposit is in the Fed accounts, and use it to pay for government spending.

Seems like a big joke but......it's perfectly legal.