The "Fiscal Cliff"

[deleted15807]

proof in point: the USA is rebounding while many EU nations, following austerity programs, are falling further behind

and poor Greece every few months they're forced to drink more hemlock. it will get better soon as they force it down her throat. right.

 

[KTF40]

Borrowing Money
Who did greece borrow money from ? - Yahoo! Answers

the above links might explain it better than I can.

Yeah, those links confirm what I was saying.

My point is I see posts from you and Slurper talking about how "austerity doesn't work" when these countries have no choice in the matter.

 

[Jason]

I disagree... Austerity doesn't work. It exacerbates the problem even further.

Yes, austerity makes the problem worse. But not practicing austerity makes the problem even worse than practicing austerity. This is what I mean by no good option. The USA is a patient facing either amputation of a leg (austerity) or amputation of both legs (no austerity).

Both Obama and Romney failed to tell the US electorate that they will be poorer by the time of the next presidential election - this is the very best case scenario if austerity is practiced. Austerity probably will produce a recession and certainly lots of misery, but it offers a way forward over a decade. Failure to practice austerity will cause bond yields to rise to a level where the USA cannot service the debt. This bond market effect far outweighs any possible Keynesian benefit of keeping spending going. If the USA now puts in place a range of tax increases and spending cuts there is a way forward - if not then the USA will follow Greece. And while the world economy can cope with a Greek default it cannot cope with a US default.

 

[dandelion]

...My understanding it's either go bankrupt or demonstrate some fiscal sanity. The same would occur here in the US, but as Jason stated there seems to be an international perspective that the US is too big to fail.

You should read the euro thread for a full discussion of the arguments...but its a bit long. I just googled and found this 32 States Now Officially Bankrupt: $37.8 Billion Borrowed From Treasury To Fund Unemployment; CA, MI, NY Worst | ZeroHedge list of US states going bust. The difference is that the US has a fully integrated currency system but the EU does not. In the US Quantitative easing has paid for $3tn of $16tn government debt (approx, first figures I found). I think probably the ECB has injected rather less, but its hampered because it has to do it by rather roundabout means. It is much harder in the Eu to act centrally to prop up failing states.

The US is currently benefitting from being one of the least worst places to put your money, which is a marvelous scam so long as you can keep it going. It does rather illustrate that the world is awash with money belonging to someone and wanting a home. So much better to take more of it in taxes rather than borrowing it.

 

[B_muserskiy]

The US doesn't need to be austere but needs more fiscal policies which are being voted against in congress by the republicans.. that makes it tough to grow at higher rates, monetary policy alone isn't enough

as for Europe, many of the countries debt are unsolvent, so spain,greece,etc can't do fiscal policies themselves, but if there was fiscal unity, it would be much easier.. it is a case for fiscal reforms or eurozone balkanization

 

[Jason]

Yes the USA's ability to withstand the crisis so far demonstrates the strength of the systems of the USA. I think QE has to be a big part of the rescue process for many years to come, perhaps in the ball park of $1tr a year for the next decade. With austerity applied the bond markets should remain kind. The biggest problem that I can see is that the US population is completely unprepared as politicians on neither side are discussing the reality (instead they are putting all their energy into arguments around tax and spend as if there is anything at all to argue about) and I think there could be a popular backlash.

 

[deleted15807]

Yes, austerity makes the problem worse. But not practicing austerity makes the problem even worse than practicing austerity. This is what I mean by no good option. The USA is a patient facing either amputation of a leg (austerity) or amputation of both legs (no austerity).

I see you've spilled your cult of austerity message over from that other thread to this one. Anyway igniting the economy is far more important than austerity. Where has it worked? It's a prescription that only makes the patient worst. What's needed is a balanced approach to the defeict.

“Decreasing debt is a marathon, not a sprint,” observed Olivier Blanchard, the fund's chief economist. “Going too fast will kill growth.”

Perverse austerity

​

 

[meatpackingbubba]

Trust me...taxes are not low

 

[meatpackingbubba]

And austerity will eventually be imposed by the bond markets if we don't correct the spending. For now, the Federal Reserve has been a huge buyer of US government debt (monetization of the debt, a/k/a "printing money") but this can only go on so long. The bubble has been building. It's what is known as an "economic imbalance" and will end badly if action is not taken first. All the rhetoric from the administration and others notwithstanding.

Government spending as a percentage of the total economy is at a high level. That means that the government and its bureaucrats are in our lives more. I, for one, do not desire to cede my liberty to an all suffocating government.

 

[dude_007]

Economists were projecting back in 2008 that the economy wouldn't come back til around 2014. Take a deep breath and chill. It'll turn around. It always does. Life is better than it was 100 years ago. If you have the luxury of an internet connection and a roof over your head, you're doing ok. Complaining online isn't helping the problem.

 

[Jason]

@Sargon20, yes the austerity prescription will make the patient worse, perhaps for a decade. No austerity and the patient will die.

The USA has no choice. Unless austerity is imposed the bond markets will take down the world's most powerful economy. The USA has such a huge debt that it can only be serviced if bond yields are very low indeed - and they will only remain low if deficit (ie debt increase) is perceived as under control.

Austerity means bigger tax rises than any American I know can imagine along with bigger expenditures cuts, and it certainly means an increase in unemployment and a drop in everyone's living standards. There appears to be little US realisation of the seriousness of the problem. This isn't about Obama's policies versus Romney's, it isn't about the fiscal cliff - it's about saving an economy. And it hasn't helped that the election has scarcely discussed this.

 

[c7o]

Both parties need to understand, a little over 50% of the people want Obama's solution. Just a little under 50% do not. He won the election, but it stupid of either party to hold out for everything they want. The country is split down the middle on most things. Both parties need to work together & do the job they were elected for. People who say Obama should hold out should understand, the President needs to try to take care of 100% of the people, not just the ones who voted for him. Neither party will get everything that they want, quit pounding their chests, talk to each other. For once do what is good for all of the country, not just their own party.

 

[Redwyvre]

I'm thinking we'll probably being hanging off the fiscal cliff for awhile but we won't go over it. For the time being things are politically settled.
If I understand it correctly with the Affordable Care Act every business large and small will be required to submit all of their financial records to the IRS/government/insurance/finance authorities and the way I see it with so much information they will be able to run the country like a giant retail business. Inventory, sales, loss prevention, cost of doing business, ect ect... it'll all be available for analysis. We'll have to see how it goes.

 

[deleted15807]

No austerity and the patient will die.

What patient has ever died?

Trust me...taxes are not low

Why should we trust you? What taxes are 'high'? Links?

 

[Jason]

What patient has ever died?

Many nations in South America and Africa have gone through sovereign defaults in the last couple of decades. They are not pretty. Greece has gone through a partial default earlier this year and may well fully default, and again the scenes are not pretty.

A US default could be partial or full and the details do matter. But consequences could include a much lower standard of living for all in the USA. pension funds are heavily invested in bonds, so pensions would take a knock. The ability of the USA to borrow money would cease, so a balanced budget would be a requirement - which would mean some very high taxes.

Either the USA accepts austerity or default will happen. Efforts to spend out of recession will cause a default.

 

[deleted15807]

Either the USA accepts austerity or default will happen. Efforts to spend out of recession will cause a default.

Huuum

No Chance of Default, US Can Print Money: Greenspan

 

[meatpackingbubba]

Huuum

No Chance of Default, US Can Print Money: Greenspan

Which becomes, of course, de facto default if continued unchecked.

 

[sillystring]

Huuum

No Chance of Default, US Can Print Money: Greenspan

Isn't Greenspan commonly blamed as the architect of the recession?

 

[megaman1898]

Peter Schiff Explains the Financial Crisis - YouTube

This guy (along with very few others) predicted the crash way back in 06 and 07. Even wrote a book about it. Yet the MSM didn't believe him and laughed it off. Ron Paul also predicted in 2003, once again, few believed him. This is a pretty good summary of what happened.

 

[Jason]

Huuum

No Chance of Default, US Can Print Money: Greenspan

It is hard to see a way forward for the USA which doesn't include some QE in order to avoid default. But unlimited QE is not an option. As pointed out above, excessive QE would itself be a default.

I don't see much realism in the USA about the nature of the problem. In the EZ people have got it - they know that the catastrophe has happened and they must somehow find a way through. But most of the US debate in the run-up to the election was the debate of denial. Neither the Obama nor the Romney "solution" will work - both were sops to a gullible electorate. The hope was a decisive win for either side so they could tear up their commitments and do something right. The debate about taxing the rich or tearing up Obama-care is rearranging the deck chairs. The US needs to be debating MEANINGFUL policies. In terms of expenditure the one that has to be cut is defence as the US defence budget is so huge. And the cut isn't a few percentage points, it is upwards of 50% over a very few years. In terms of tax some major new source of revenue is needed. Increased CT is probably not right, and there are problems with income tax. Sales tax is probably better. The simplest would be some sort of special new tax on gas - but I'm not talking a cent or two. Say $4 a gallon, introduced progressively over a couple of years.