The "Fiscal Cliff"

[megaman1898]

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.

I agree with some of what you said. But with the fed printing more money with QE, lowering the value of the dollar(which has been happening for a while now) which in turn drives up the prices of things that we need due to the devaluing of the dollar, is already a tax. Gas prices, energy prices, and food prices at the grocery store have all gone up and will continue to do so. Also not to mention that with the FED keeping interests rates artificially low, there is no way to make money by saving in the banks.
The problems go back a loooong way, and both parties have been guilty of not addressing the main issues that led to the collapse of the .com bubble, the housing bubble, and other things that aren't allowing the US to actually have any noticeable growth in GDP while still fighting against inflation. We are spinning our wheels it seems.

The simplest tax is no tax, but, since the Gov has grown itself to such a massive size, and continues growing through non effective regulations and legislation to serve special interests, it is a massive, inefficient money pit. IMO

 

[MichiganRico]

The solutions are not all that difficult. Most have already been outlined in Simpson-Bowles. What is lacking is the political will. We need a flatter, fairer income tax structure where the wealthy, who have been disportionately protected by the current tax code, pay more. This can be accomplished by eliminating a number of deductions for those earning more than $250K a year while largely maintaining middle class taxpayer deductions. The President gets more revenue while the Republicans can say they didn't raise tax rates--a "win-win" compromise. Medicare will need to conform to most of the Simpson-Bowles recommendations--irrespective of the howling of the AARP. Some other accommodations will need to be made in respect to entitlement programs--much as was accomplished by the Clinton Administration. Capital gains rates will need to be revised slightly upward. It's very difficult for average Americans to understand why a Mitt Romney or a Warren Buffet pays a much lower tax rate on income simply because of how its generated. (Again, this is an issue of political will and Congress will be lobbied hard by every special interest which may be affected by a restructured tax plan since each and every deduction is someone else's "bread and butter.")

In respect to meaningful debt reduction, we need to hold off on true "austerity" until our unemployment rate reaches an acceptable level, somewhere in the neighborhood of 5% or so. (Fortunately, we need only to look at the economic laboratories of Europe to see where austerity with weak GDP gets you--another recession with even weaker economic growth.) Any settlement can include a "trigger" that begins "austerity" when certain economic indicators, like the unemployment rate, are optimal.

There are many positive factors at work. President Obama's re-election carries with it a great deal of political capital and the electorate has made it clear that it wants bi-partisan cooperation, and the Tea Party has done very little to advance the Republican brand--quite to the contrary. Grover Norquist is becoming more irrelevant with voters approving a tax increase for public education in California and Michigan rejecting a change to its Constitution requiring a two-thirds majority in both Houses to approve any new tax increases. And the most powerful impetus to reach a compromise, on both sides, will be coming from corporate leaders who want a settlement and some "certainty."

Once the process begins in earnest (no doubt it's already underway in the Senate), it will be up to all of us, both D's and R's, to communicate with our elected reps. It will take lots of e-mails, letters and phone calls (campaign contributions don't hurt either) to overwhelm the special interests. Just as big special interest money didn't work in this election, we can assure it doesn't deter our elected representatives from actually doing their jobs and reaching an agreement.

 

[AtomicMouse1950]

Obama & the Dems in Congress don't have to do anything. Its the Republicans have to come to the table. Congress failed to come to a compromise on Simpson/Boles. One of the members of the commitee was Paul Ryan. The right wing of Congress refused to bring the committee recommendations to a vote, kicked the can down the road. Let Simpson/Boles kick in on Jan.01,2013.

 

[Jason]

US bond yields (on benchmark 10 year) are a fraction over 1.6%. For comparison back in 2002, 2006 and 2007 the yields were more than 5%. Back in 1981 they breached 15%.

The present low rates for US bonds have a lot to do with the mess of economies around the world. It is not that investors are impressed by the US economy, just that it is seen as less likely to default than most others. The UK is getting the same benefit - as is Switzerland. The low yield is based on the butterfly of market confidence.

There are many ways to make markets take fright, and therefore lots of things the US mustn't do. To keep the markets quiet the USA has to demonstrate that the deficit is under control, ie that tax and spend are being brought into balance. If the markets once decode this is not the case they will take fright.

The US debt is so great that even at 1.6% it is a crippling burden. Double the rate - say to 3.2%, way below the levels of the last decade, and the money paid on servicing debt doubles. The USA would have to borrow money to pay interest on debt, which is a death spiral.

The prudent option is therefore austerity. How ever much unemployment it creates, however deep the recession it creates, it is still the least bad option. I don't personally agree with policies in Spain, but even with over 25% unemployment (and over 50% youth unemployment) the majority of their government feels that austerity is a price worth paying. There are sober economists who would see US unemployment at 25% as the result of austerity as the least bad option.

So what else is there? Default? Politically this might actually be needed to get the people of the USA to accept reality. It is not about a few cuts and a bit of belt tightening, it is about accepting that this generation's prosperity was squandered by the last and we are all going to get poorer.

Or is there some sort of miracle solution? Well a lot of QE would help (it is inflationary, it hurts people including the poor, but this is the world of least bad options). There's also far more central bank co-operation to iron out market fluctuations. In theory there's some wonderful new technological advance as a way out, something that would produce free energy - but I don't think anything is just round the corner.

Probably the best answer is a combination - QE, plus austerity, plus international bank co-operation. But the very best case scenario is worse than almost anyone in America seems to expect. Neither Obama nor Romney talked about the inevitable fall in living standards of every American.

 

[gymfresh]

The USA has no choice. Unless austerity is imposed the bond markets will take down the world's most powerful economy.

Austerity is not always the only or even the best option; economists have a variety of viewpoints.

Frankly, I haven't seen convincing evidence that there aren't times it's best for a government to spend its way out of a recession, especially when the funds go mainly for infrastructure improvements and new jobs. The absolutist focus on contraction seems to me to healthier than the discredited medical practice of bloodletting.

 

[AtomicMouse1950]

Peter Schiff was wrong to blame the Federal Reserve for the crisis. The Federal Reserve had nothing to do with the crash. It was Clinton's signing of a bill killing Glass-Steagall Act , which separated Wall Street from the business of Banks. That led to the drunken like behavior of Wall Street and the Banks, and the Housing Bubble. It was also those people who were trying to convince poor slobs to invest in a no money down home loan, to flip a home and make more money on the deal. All of those houses that were looked at as a get rich quick scheme... all of those people holding that phoney paper, defaulted, when they couldn't flip the house, on an ever growing, and increasing bloated housing prices. The Fed, wasn't the problem.
I really don't give a damn what Schiff said, he was wrong.
And why do well meaning, hard working home owners have to take the HIT, for something the banks and Wall Street caused. There hasn't been any kind of legal litigation against them, for causing this. Instead they all get bailed out and rewarded, and they're about to do it once again. In Fact they never have stopped doing it. Believing they're going to be bailed out once again. Where the bailout money should have gone to, was the home owners who were struggling, not the banks and Wall Street.

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.

 

[Perados]

Peter Schiff was wrong to blame the Federal Reserve for the crisis. The Federal Reserve had nothing to do with the crash. It was Clinton's signing of a bill killing Glass-Steagall Act , which separated Wall Street from the business of Banks. That led to the drunken like behavior of Wall Street and the Banks, and the Housing Bubble. It was also those people who were trying to convince poor slobs to invest in a no money down home loan, to flip a home and make more money on the deal. All of those houses that were looked at as a get rich quick scheme... all of those people holding that phoney paper, defaulted, when they couldn't flip the house, on an ever growing, and increasing bloated housing prices. The Fed, wasn't the problem.
I really don't give a damn what Schiff said, he was wrong.
And why do well meaning, hard working home owners have to take the HIT, for something the banks and Wall Street caused. There hasn't been any kind of legal litigation against them, for causing this. Instead they all get bailed out and rewarded, and they're about to do it once again. In Fact they never have stopped doing it. Believing they're going to be bailed out once again. Where the bailout money should have gone to, was the home owners who were struggling, not the banks and Wall Street.

Sure the FED and Alan Greenspan is to blame... It was him who lowered the intrest and sayd: We created an age of no inflation! - he was wrong, and he knew he was.
And ben bernanke followed his policy... Between 2002 and 2007 the amount of money has doubled, the GDP increased just by 20%. This massive difference between money increase and GDP growth was the main reason for the crash in 2007.
Not only the house prices increased, but also resources and shares. - all 3 together show that the FED is guilty

 

[AtomicMouse1950]

Alan Greenspan, let's not forget was appointed by Ronald Reagan to this post. Greenspan is an old crony of Ronald Reagan, when Reagan was Governor of California. Greenspan headed a similar post in California. Since that time, because of Greenspan... California has had similar meltdowns. The prior Democratic Governor, was stomped on, by the Right over something, that Dem Governor didn't have any connection to, Enron. And they swept Schwartzenegger into office. Arnold and the other prior Republican Governor, nearly buried California into mass debt. Thanks to people like Greenspan. Now with a super Dem majority, looks like it's possible to bring California up from the bottom. We shall see. And still I disagree with you... and you're entirely wrong.

Sure the FED and Alan Greenspan is to blame... It was him who lowered the intrest(interest) and sayd(said): We created an age of no inflation! - he was wrong, and he knew he was.
And ben bernanke followed his policy... Between 2002 and 2007 the amount of money has doubled, the GDP increased just by 20%. This massive difference between money increase and GDP growth was the main reason for the crash in 2007.
Not only the house prices increased, but also resources and shares. - all 3 together show that the FED is guilty

 

[Jason]

Austerity is not always the only or even the best option; economists have a variety of viewpoints.

Frankly, I haven't seen convincing evidence that there aren't times it's best for a government to spend its way out of a recession, especially when the funds go mainly for infrastructure improvements and new jobs. The absolutist focus on contraction seems to me to healthier than the discredited medical practice of bloodletting.

This is a debt crisis - the idea of investing or spending to get out of it is a fallacy. The global economy has hit the limits of what Keynesian economics can do.

The key is that the USA has to demonstrate that every year its tax take exceeds its expenditure plus debt income. The USA is way out of balance. If everyone in the USA were in a job it would still be way out of balance - creating full employment won't work (though it would help a little bit). What is needed is at the same time an unbelievably massive increase in tax along with an unbelievably massive reduction in expenditure. Yes this has to be phased in, but it has to be done

 

[deleted15807]

There are many characters to blame in the collapse including the Fed but it all boils down to one grave human vice...greed. Greed is at the center. Greed drove everyone to remove the speed breaks to create the runaway train. And of course it wrecked. It will happen again most assuredly. Greed isn't going anywhere anytime soon.

WASHINGTON — The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a federal inquiry.

The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.

Financial Crisis Was Avoidable, Inquiry Finds​

 

[Perados]

Alan Greenspan, let's not forget was appointed by Ronald Reagan to this post. Greenspan is an old crony of Ronald Reagan, when Reagan was Governor of California. Greenspan headed a similar post in California. Since that time, because of Greenspan... California has had similar meltdowns. The prior Democratic Governor, was stomped on, by the Right over something, that Dem Governor didn't have any connection to, Enron. And they swept Schwartzenegger into office. Arnold and the other prior Republican Governor, nearly buried California into mass debt. Thanks to people like Greenspan. Now with a super Dem majority, looks like it's possible to bring California up from the bottom. We shall see. And still I disagree with you... and you're entirely wrong.

:biggrin1: :You_Rock_Emoticon: :biglaugh:

 

[AtomicMouse1950]

I agree with the NYTimes piece...100%

[/B]QUOTE=sargon20;4415321]There are many characters to blame in the collapse including the Fed but it all boils down to one grave human vice...greed. Greed is at the center. Greed drove everyone to remove the speed breaks to create the runaway train. And of course it wrecked. It will happen again most assuredly. Greed isn't going anywhere anytime soon.

WASHINGTON — The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a federal inquiry.

The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.

Financial Crisis Was Avoidable, Inquiry Finds​

[/QUOTE]

 

[AtomicMouse1950]

Some various views of the Fiscal Slope, and taxes....
The Fiscal Cliff Explained - Forbes

The Fiscal Cliff For Dummies, Part 2: The Economic Implications Of Extending The Bush Tax Cuts - Forbes
The Facts On Tax Rates: Who Pays What - Forbes

All from Forbes.

 

[slurper_la]

Mitt Romney Economic Adviser Calls For Raising Taxes On The Rich, Contradicting Entire GOP Campaign

 

[b.c.]

And remember this graphic when the issue came up in 2011:

Infographic: Tax Breaks vs. Budget Cuts | Center for American Progress

 

[AtomicMouse1950]

To help fix the problems, we need to go after the hedge fund managers, who pay little or no tax at all. We also need to re-invoke The Glass–Steagall Act and strengthen Dodd/Frank, which the Republicans gutted.

And remember this graphic when the issue came up in 2011:

Infographic: Tax Breaks vs. Budget Cuts | Center for American Progress

 

[Jason]

To help fix the problems, we need to go after the hedge fund managers, who pay little or no tax at all. We also need to re-invoke The Glass–Steagall Act and strengthen Dodd/Frank, which the Republicans gutted.

There's nothing wrong with going after these or any other group. But even if every last cent is collected it won't work. The deficit is too big.

A view from the eastern side of the pond is that the USA is wasting its time even debating these issues. The changes that have to be made are far bigger than this.

 

[sillystring]

There's nothing wrong with going after these or any other group. But even if every last cent is collected it won't work. The deficit is too big.

A view from the eastern side of the pond is that the USA is wasting its time even debating these issues. The changes that have to be made are far bigger than this.

You take your Thatcherism and you just get out, get out I say!

Just as an aside, are there any territories off the coast of South America that the U.S. can send a flotilla towards and take off your hands for a month or two? Sort of a time-share deal?

 

[AtomicMouse1950]

Steve Kornacki really doesn't like the term 'fiscal cliff' - Video on NBCNews.com

 

[tamati]

the real "fiscal cliff" was what the GOP tried to drive US off under GWB.