Skip to comments.The Real Cliff: The staggering debt from decades of continuous borrowing is about to come due
Posted on 12/28/2012 4:33:29 AM PST by SeekAndFind
It is important to understand that the fiscal cliff is a charade. There are, to be sure, many conscientious debt reformers working to avert our proclaimed year-end epic fallalong with many cynics who are using the occasion to advance pet projects that will make the debt problem worse. But all concerned are working within a fiscal system that has become seriously pathological. The cliff is the latest expression of that pathology.
Just last year, the president and Congress agreed by statute to (a) increase the federal governments public debt by more than $2 trillion (up to $16.4 trillion) and (b) begin reducing annual federal spending by less than one-tenth that amount starting in 2013. A variety of temporary tax reductions, aimed at spurring recovery from the Great Recession, were also scheduled to expire in 2013. Now that the new debt has been borrowed and spent, the prospect of actually reducing our annual $1 trillion deficits by a significant amount is regarded by all sensible people as a catastrophe that must be avoided at all costs.
And what is to be done to stop the spending cuts and tax increases? This months partisan positioning over raising taxes on the wealthy masks a consensus, embraced by the leadership of both parties, on two essential principles of cliff-avoidance. First, the vast majority of Americans who are middle class must be spared any clear-and-present impositions: Their direct income taxes must not be increased, and their Social Security and Medicare benefits must not be reduced any time soonmeaning that any reductions will be as contingent, and possibly ephemeral, as last years debt-reduction accord. Second, the federal debt must be immediately increased by yet another $2-3 trillion, with further increases of equal magnitude certain to follow.
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The economy WILL implode, sooner or later. When I see friends and family in a bread line, I am going to be one pissed off American. Those scoundrels in DC think they will not be affected.
I have repeatedly said the fiscal cliff is nothing more than a media hype. NOBODY will be immediately impacted because the lazy Congress will immediately pass on Wednesday a stop gap measure to continue the spending and it takes time for the tax increases to be implemented. However the debt is another matter. We cannot borrow from any foreign country now and so must implement inflation to pay the bills. The end result is the masses will either suffer more taxes or higher prices with no increase in incomes.
I might be pissed off at my liberal friends and family first and say “We told you so, dumbasses!” then I will immediately direct my anger at DC.
At no cost! LOL
I respectfully disagree about the present, and agree with your long term scenario of a devaluing currency via printing / fiat as they spend like Linsey Lohan on a bender.
I spent a great deal time to prepare and a commensurate sum to sit with a CPA and see what the effects of the sun-setting of the Bush tax rates and the lack of AMT patches for 12' and 13' would cost my family. Worst case scenario? almost 8 grand for 12' & 13' with the AMT kicking in. The AMT is the biggest bugaboo in this whole mix and hardly anyone is talking about it. Immediate, perhaps if HR's / Payrolls around the country at employers automatically default to the Clinton rates. Yes, they can do a stop gap measure, and yes implementing the tax code back to the Clinton rates would be a nightmare, they don't even have the old code and need to bring some old programmers out of retirement to make it happen. A tangent issue is the CPA and EA I talk to are freaking because of what it will do to their careers / practices between 1/1/13 and 4 /15/13. They cannot give advice or operate with no code via legislation by Congress and said code codified by the IRS so they can actually have something to work with.
Instead America chose the bartender that said free drinks on the house vs. the Businessman type in Romney that might of actually had that adult conversation.
America chose the GM Model instead of Ford's for it's turn-around on 11/6, so I ask how is that gonna work out for us?
They might as well bring former GM CEO Rick Waggoner out of Retirement and make him a consultant for Obama....
At this point, I think the problem has become intractable—we are well past the tipping point. Consider:
— Most Americans are either getting some kind of Federal benefit and/or they are directly (or indirectly, as in contractors) employed by the Government—or depend on someone who is. So, a supermajority of people rely on Government spending for their livelihood.
— While most voters SAY they don’t like deficits, when you ask them for specific things to cut, those things are always untouchable. For any proposed cut (or reduction in the rate of increase), the MSM will, on cue, drag out some sob story whose life we be ruined if those cuts are made.
— Politicians have only incentive to spend, not to cut. Any increase in revenue will be spent, period. Even when we had the “surprise” surpluses, the politicials fell all over themselves proposing new ways to spend it.
— The rate of spending is increasing, not decreasing. Government entitlement programs actively go out and market their benefits to new clients (read: voters).
— As more Americans become clients, the percentage who even CARE about how high the deficit is coming down. As Romney indicated, these people want their free stuff and they don’t care how they get it (or who they have to vote for to keep getting it).
— The Federal Reserve enables all this by buying US Treasury bonds with $$ created out of thin air. This depresses interest rates and keeps the expanding deficit affordable. Conversely, it also robs savers of adequate interest on their savings. It has no choice as there just isn’t enough free $$ in the world to finance our annual deficit. If the Federal Reserve did not do this, at some point there would be a failed UST auction and interest rates would spike, and the deficit would become unaffordable.
The only thing saving us right now is that ALL the Industrialized Central Banks (BOE, BOJ, ECB, etc) are doing about the same thing. In fact, Japan is even worse off than we are. When Japan finally fails, UST prices will surge. But that will be a selling opportunity for USTs ‘cause we’re not all that far behind.
What’s the solution? Land, guns, gold, and beans.
The solution is multi pronged, at least two pronged.
The primary prong is inflation. The debt will be devalued
The Democrats will not implement a direct tax on their base. It is political suicide. The tax will be more insidious than inflation. The tax will be trickle down. The Trickle down tax is Cap and Trade. Energy producers will pay the tax and charge it back to their customers. Everybody, even the poorest of the takers, uses energy and will pay the tax. The trickle down will be very regressive in nature.
Some say there will be exemptions but not total. they will still pay some trickled down tax
Amen my friend. I am more of a flat tax guy, but I could be convinced otherwise. PMP Plan, I'll have to review, I can't remember which one that is. On Continuous Improvement, as someone who has been through downsizings and in organizations where Demming, Kaizen Events, Taguchi and Six Sigma where more than buzz words, I ask when was the last time the Dept of Interior had a Kaizen event to improve efficiency? My guess? Never.
Fedzilla needs to go through what every major aerospace and automotive corporation went through from the mid 80's on utilizing these programs to reinvent themselves if they truly wanted to survive and not become GM.
Buy a wood stove or wood furance and property that has trees to sustain a long term cutable yield. If you heat your home with your own wood there is no tax on it. That is as long as they do not tax my CO2 output of my chimney. However, right now the govt. percieves wood fiber/cellulos as carbon neutral.
FYI, I am moving to a property that has about 12 acres of mixed hardwoods. My first purchase after moving in will be the largest wood stove that Jotul or Vermont Castings makes. These cast iron stoves are between 75-80% efficent. There are also wood gasification furnaces available today that burn at a efficency rate in this range.
I am sure there are other ways to avoid the taxes on energy coming our way.
Been there, done that for 30 years
I sold my stove and no longer make the effort to find, gather and split the wood. I don’t miss the labor but do miss the smell and feel of the fire
Those who can do as you say are trivial to the urban hordes of looters and takers who will pay the trickle down tax.
The impact will be lightend as it becomes part of the general inflation and all prices rise
Your picture of the SSI app, however is dead on. Paid for 100% by us taxpayers. And horribly abused and fraudulent.
Wrong, the cost will not be laid upon the customers. That is one of the most popular economic sophisms. People won’t pay any price for energy. Supply and demand is still in effect. Cap ‘n’ Trade is a tax on any business that uses energy, anyway, and will be built into the cost of everything, not just that for which demand is inelastic.
Cost will be carried back to the origin of production. Which means less jobs.
As bad as are VAT taxes, by the way, they are in no way as sinister as inflation.
As to bringing out old programmers, that is not necessary. As one who had a 40 year career programming business applications I can say there would be very little needed to change the existing programs. Most of the tax computations for a business is based upon a matrix of constants. Changing those tables would be very simple. The problem would be what to change them to. If Slumgress holds off with the fix(?) then the IRS has to adjust their directives to account for the delay in implementing the new rates and so business has to wait until they get the proper numbers to put into the programs. It is a catch-22 situation and I can easily predict it will be wrong which leads to more problems next year or at least at the end of 2013 to fix it. Typical government practise.
They are earned entitlements in one sense, but the money that is being paid out now is taken directly from taxpayers. What current beneficiaries paid was spent years ago.
Also, those collecting now are receiving far more than what they paid into the system (if they have been in the system for more than 6 or 7 years). It’s a ponzi scheme that makes every generation a burden to the next. All government programs pit groups of people against each other in a fight for the spoils.
You can't "earn" that which is derived from fraud. Social Security is a fraud called a "Ponzi scheme". Early "investors" are rewarded using the payments of later suckers. When the geometric nature of the required participation rate is discovered, one must finally conclude that the program is unsound.
Unfortunately, the government is determined to allow the fraud to continue by simply printing money to cover the shortfall, effectively taxing those who hold dollars to make the payments. This will not end well.
Your suggestion to prevent this “fraud?”
Immediate reduction of all "entitlement" payments by 5% followed by the same percentage reduction over the next twenty years. The final remaining third of present payments to then be eliminated. In twenty years the entire program is gone.
Payments into social insecurity will remain as is except that they may be reduced when no longer needed to make scheduled payments.
I think your plan would be super for all the unearned entitlements like food stamps and SSI.
Perhaps not. But hyper-inflation and the growing awareness by the younger generation that the well will be dry when they arrive may well result in the same outcome. I can hardly imagine what our grandchildren are going to be thinking when they contemplate the burden we have created for them.
Also, I am on Social Security and I agree with my plan. It's a start.