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Post Number 1 Problem Facing the US? The "Fiscal Cliff"
Created by John Eipper on 10/12/12 1:24 PM

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Number 1 Problem Facing the US? The "Fiscal Cliff" (Bienvenido Macario, USA, 10/12/12 1:24 pm)

I know I said that I'd take a vacation from commenting, but the issue brought up by Richard Hancock (11 October) is way too important.

The no. 1 problem is political divisiveness in Washington DC, which leads to inaction, as shown by the $7.7 trillion fiscal cliff coming at the end of Dec. 2012 that nobody in Congress is even worried about.

Like the Dust Bowl, which California farmers once claimed was created by Congress, the fiscal cliff was created when Democrats wanted to raise taxes while Republicans
wanted to cut spending. On Aug. 2, 2011, the Senate passed the Debt-Ceiling bill as a compromise to avoid a government default.

"The current deal to raise the debt ceiling doesn't stop us from going over the fiscal cliff. it slows us from going over it at 80 mph to going over it at 60 mph."

By now, all of the mandatory government expenditures are paid by IOUs.

I don't how the US economy could avoid the effects of the fiscal cliff. This would mean we would be in recession by March 14 or 15, 2013. Back in Aug. 2011, while I was still in London, we were discussing S&P's downgrading of US credit rating. JE believed it was treason on S&P part. Could we now say Congress is guilty of treason by sabotaging the economy through their inaction?

Here are some excerpts from a WAIS post dated 7 August 2011:

"In the meantime, I spent two days in the Imperial War Museum, London. By the second visit it occurred to me that in both World Wars, the US wasn't able to do anything, at least officially, for the first 3 years of WWI and WWII. The similarity with the financial crisis of September 2008 is uncanny. To this day, the US has not done anything to solve the crisis of 2008. I think Warren Buffett is wrong to say that September 25, 2008 is the financial Pearl Harbor of our time. Friday, August 5, 2011, when US credit rating was downgraded, should be the Financial Pearl Harbor of today.

"We are enjoying every minute of our stay in the UK. If only we have the same public transportation system in Southern California, then I will drive my car less. It'd be more economical too.

"JE comments: The UK public transport system is extraordinary, and this Detroiter is just as jealous as Bienvenido Macario, our colleague in Southern California. We have a few buses around my town, but I've yet to figure out where they go--certainly not to my job. To be sure, the US would never be able to build the infrastructure enjoyed by a tiny, densely populated country such as the UK.

"Bienvenido Macario brings up the S & P credit downgrade. The US is now in the same camp as Spain, New Zealand and Saudi Arabia for creditworthiness. The elite soirée of the most solvent nations (Canada, Australia, UK, France, Germany) has lost one of its guests.

"Where was S & P's Chicken Littleism when it gave investment-grade status to mortgage-backed securities? Yesterday Randy Black and I had an exchange off-Forum about the downgrade. In Randy's book, S & P is merely telling the truth. Given that nobody really believes their US Treasury Bonds are going to turn into worthless paper, I believe S & P is guilty of sabotage--let's call it treason."

See: Nationalization and UK Banks; S & P Downgrades US Credit, 7 August 2011


JE comments:  The Fiscal Cliff is a high-stakes game of chicken...but remember what happened in Rebel without a Cause?

Note to Bienvenido Macario:  WAIS doesn't allow vacations or sabbaticals!

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