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United States Politics

The U.S. Careens Over the Fiscal Cliff, Reaching Only Half of a Deal 639

Posted by Unknown Lamer
from the as-surely-as-the-earth-turns dept.
New submitter Jetra wrote with word that the House of Representatives failed to vote on the "fiscal cliff" deal before midnight, technically sending the U.S. over the fiscal cliff. The White House and Senate, however, reached an agreement at the last minute to allow for some tax increases, and a House vote approving it is expected in the next day or two: "The agreement came together after negotiators cleared two final hurdles involving the estate tax and automatic spending cuts set to hit the Pentagon and other federal agencies later this week. Republicans gave ground on the spending cuts, known as the sequester, by agreeing to a two-month delay paid for in part with fresh tax revenue, a condition they had resisted. White House officials yielded to GOP wishes on how to handle estate taxes, aides said." The battle over required spending cuts has predictably been delayed for another day, making the deal far from complete.
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The U.S. Careens Over the Fiscal Cliff, Reaching Only Half of a Deal

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  • by ub3r n3u7r4l1st (1388939) on Tuesday January 01, 2013 @01:32AM (#42439139)

    The only legitimate solution to the debt crisis. The treasury should immediately mint a $1 quadrillion platinum coin and deposit to the fed, using the proceeds to pay off ALL obligations.

    http://neweconomicperspectives.org/2012/12/new-msm-trillion-dollar-coin-wave-heres-the-big-story.html [neweconomi...ctives.org]

    Read carefully if you still believe that will be inflationary. For those who don't want to be "otaku" on those subjects, in one sentence: Debt repayment by PCS will not be inflationary. Starting new spending is inflationary.

    By doing so, the power of the Federal Reserve ( to inflate money supply) is stripped and going back to the government, exactly what Ron Paul has tried to achieve.

    IMHO, the PCS Hack gives to the presidency the power to prevent an abuse of power by the Congress, namely the debt ceiling legislation itself, and also gives the President the power to avoid interest bearing debt instrument-based financing of Congressional deficit spending appropriations if he/she desires. I think both of these are very good things, especially since the key power of controlling the purse strings still remains with the Congress, and not with the President. It seems to me that any greater leverage that falls to the President as a result of using PCS is leverage that can always seized back by Congress anytime it wants to do its collective job and represent the majority of the American people. On the other hand, if it wants to continue to represent narrow and plutocratic interests seeking to block any Federal spending that doesnâ(TM)t directly benefit them, then PCS profits may be viewed as a check on such an abuse of power by the Congress, and a reminder to Congress that the âoehow are we gonna pay for itâ excuse for not legislating Federal programs people desperately need won't work anymore!

  • Re:Fiscal cliff (Score:2, Interesting)

    by ub3r n3u7r4l1st (1388939) on Tuesday January 01, 2013 @02:16AM (#42439349)

    You are assuming the extra money generated will go to the rich. A proper full employment social program and expansion of infrastructure spending will ensure money flows to the bottom of the ladder.

    We don't need bond investors, as there is no need to borrow money anymore. We can issue "ceremonial" or "souvenir" bonds, and the interest rate at OUR choosing. Either pay or leave.

    I suggest you to read the following article about the illusion of the national debt:

    http://neweconomicperspectives.org/2012/12/americas-deceptive-2012-fiscal-cliff-part-2.html#more-4107 [neweconomi...ctives.org]

    We have enough natural resources to cut off our imports. Then we can also utilize our world's strongest military to nationalize resources around the world for our interests.

    Saying "the only way is to pay out" is the same is subduing yourself for being raped by the international bankers.

  • Re:First Time (Score:5, Interesting)

    by afidel (530433) on Tuesday January 01, 2013 @03:16AM (#42439583)

    No, a balanced budget is the last freaking thing we or any country needs. National budgets aren't like your personal checkbook, hell they're not even like a companies balance sheet (btw almost no profitable companies have zero debt (a balanced budget) because a certain level of debt is positive as long as it's being spent on things that will increase profitability and/or revenue). No, a national budget is a much more interesting beast, and when you're in the enviable position that the US is currently in it's even more interesting. You'll note that the ratings agencies downgraded US debt and a few months later the markets actually drove the dividend on the t-note negative (yep, people paid the treasury money to buy our debt), what company or individual gets paid to issue debt?

    No, what we need is to start electing adults to the House and Senate again that will stop doing things like cutting taxes for the hell of it while authorizing two unfunded wars during a time of plenty. We need to increase our R&D spending so that we can continue to be the center of innovation that we've been for the last century or so. Finally we need to start spending on useful infrastructure projects and stop building bridges to nowhere just because it brings temporary jobs to one district. In other words we need to be smart about how we spend our dollars, not slash the dollars spent.

    Finally we as a society need to realize that as we increase our average lifespan we need to on average delay retirement while still allowing a safetynet for those unable to continue working.

    None of those things would be solved by a balanced budget amendment.

  • by lightknight (213164) on Tuesday January 01, 2013 @04:19AM (#42439803) Homepage

    While I am not defending the Republicans, your comment is somewhat disingenuous. What the Democrats are preparing to do is as dangerous as what the Republicans have in mind -> take out yet another loan in your name, and let it accumulate even more interest.

    That's super dishonest, as I imagine most people are unaware that that's the plan; they think taxes will just go up on the rich, and everything will be fine for another several years, after which they will have to hike the taxes on the rich again.

    Read what I am saying: no matter which side wins or compromises, even if either side gets everything they want and more, you're totally fucked. I've studied politics (something of a leisure activity), and I've studied economics (far from being an economist, but I can make the numbers dance); the American public is sitting on a triple F nuclear fiscal bomb here, and you have the choice of 1.1 Megatons now, or 1.7 Megatons later (the yield setting); those are your only options. You may argue that that's all doomsday crap and none of that has ever come true, but the numbers don't lie; look at the GAO's reports on government expenditures, look at what the Treasury is saying; but I digress, I feel like the kid on Venus who is telling his classmates that there is such a thing as the sun. When this thing goes, and it will (in all probability, short gold bars rain down from the heavens), an infantilised American people will wake up to find themselves paupers; how the safes and vaults were raided when the contents are still within will be a mystery for quite some time.

  • Re:First Time (Score:5, Interesting)

    by sg_oneill (159032) on Tuesday January 01, 2013 @05:02AM (#42439983)

    I saw an interview with a fairly serious economist who said , when asked about the budget deficit , "Deficit is something that politicians worry about, not economists. The problem only really occurs when politicians make bad decisions based on a countrys deficit like what we are seeing in europe". His point is, that the european boondoggle is a problem caused by politicians freaking out about debt, rather than forces in the economy which are largely unaffected by deficit. The important thing is that money flows in an economy simulating trade and productive activity. You do not achieve this by austerity, which is why cutting government budgets have pretty much never actually helped an ailing economy.

    Theres a reason why economists largely treat the austrian school of "surplus at all costs" as cranky.

  • Re:First Time (Score:1, Interesting)

    by roman_mir (125474) on Tuesday January 01, 2013 @05:24AM (#42440107) Homepage Journal

    No, a balanced budget is the last freaking thing we or any country needs.

    - USA used to be a large borrower, but it used to borrow in order to build up production capacity. The borrowing was private, not government, not public.

    Eventually over the 19th century so much production was built up that USA became largest manufacturer and exporter and that's why it was able to pay its debts and become largest creditor, and it was creditor even up to Reagan era, when it finally turned around and became a debtor nation. It took almost a century to squander its wealth, that's what it means. It means that USA wealth that was built up during the 19th century was truly staggering, but everything ends, even staggering amounts of wealth.

    spent on things that will increase profitability and/or revenue

    - aha, but that's not what is happening at all. Private borrowing that leads to increase in productive capacity is basically stopped, it's all government borrowing, which is only done in order to keep consuming.

    Half of the money that USA government spends is borrowed money, but this has nothing to do with productivity, it only has to do with consumption. SS, Medicare, Wars and other spending, it's all consumption, there is no 'increase in profitability'.

    Nobody is growing profitability in USA except for some energy miners, and they are paying taxes to the uncle Sam through the nose.

    Your next few statements show how you completely misunderstand the problem, you think taxes must be high and so must safety net. Here is the thing: safety net must not exist and taxes must not exist either, that's how you get growth, not by stealing from people who can produce (and they can produce anywhere else, which they have conclusively shown) and you can't subsidise people for not working with money you steal from those who produce and call that 'trade'.

    That's not trade. If person A produces and person B doesn't, there can be no trade between them. They are not trading anything, if person B consumes on credit the question is: can he produce enough in the future to offset the debt? If we doubt that then why would we give them the credit?

    Of-course what is actually happening in USA (and Greece and all these other socialist countries) is that person A is taxed [slashdot.org] through the nose [wsj.com] and person B votes for politicians who promise to take from person A and give to person B.

    Then they have the gull to tell people that consumption by person B with money that was stolen from person A to redistribute products that person A created to person B constitutes a working economic model.

    ---

    None of those things would be solved by a balanced budget amendment.

    - you are CORRECT on this one, not for the reasons that you think but for other reasons. Balanced budget amendment doesn't mean anything at all if to 'balance the budget' you decide to tax people even more.

    No, the only true way to fix the problem is to cut government, cut government spending, reduce government at the minimum by 50% (which is how much of government today is paid for with borrowing, almost 50% of all money that gov't spends it borrows, so at the minimum 50% of gov't must be cut).

  • by rhsanborn (773855) on Tuesday January 01, 2013 @06:41AM (#42440375)
    You're right. I think both sides are bit blind. I personally think the right is more blind than the left, and grossly unrealistic about what taxes are currently, and have been historically. We pay relatively low taxes for a first world country. But I do agree, this wouldn't be dragged out this way if there weren't people on both sides screaming in the ears of the legislators that they won't accept one inch of compromise.

    We are actually lucky Obama is in his second term, it historically gives him more leeway to compromise because he doesn't have to prepare for another election. There is speculation that both sides, but the repubs especially would like to see the tax cuts expire, because then they wouldn't have voted for a tax increase and therefore wouldn't have violated their blood pact never to ever even think about once raising taxes (or Jesus might hate them), which they can then cut after the fact and call it a compromise, blame the big bad dems, and never had to violate the letter of their little agreement.
  • Re:First Time (Score:3, Interesting)

    by eugene ts wong (231154) on Tuesday January 01, 2013 @07:40AM (#42440551) Homepage Journal

    The guy that I was responding to insisted on perpetual debt. If you want to spend borrowed money on a fantastic opportunity that is time limited, then go for it. However maintaining a perpetual debt on purpose is a waste.

    Regarding your argument of job losses, yes I understand, but people quit their jobs all the time. As they quit, spending could be reduced, to discourage hiring.

    Shuttering the military industrial complex sounds nice to me. I don't believe that government and CEOs should be in the position to maintain employment by hiring people to make things for killing. In that specific situation, their manufacturing would be no more productive than just sitting around doing nothing. I suppose that they might as well make ammo for target practise, but that's not the point of this discussion.

    For your job loss concern, the money would be better spent giving financial rewards to those who build and sell environmentally friendly products. I realize that you weren't speaking against such a suggestion, but my point is that reduced spending, plus shuttering manufacturing of a certain thing, and maintaining a surplus can be a good thing.

    I'm not saying that we have to have a surplus, even if it shocks the economy. I'm saying that having a surplus is a good thing, and that we can't speak out against it, just because it's a surplus.

    If we're really concerned about job losses, then the government could have the same effect by closing off the borders, and requiring more domestic manufacturing, and finding ways to direct our personal spending.

  • Re:First Time (Score:5, Interesting)

    by Cederic (9623) on Tuesday January 01, 2013 @08:05AM (#42440623) Journal

    What you've described is the way in which countries can mitigate getting into debt. It's still better to balance the books. The costs go up with inflation too.

    Shit, run a small surplus. You can then see through any 'bad' years without incurring debt. You can fund capital investments without incurring debt.

    Anyway, your plan is flawed.
    Year 0, borrow X at fixed interest rate Y for term Z.
    Assume Y is the rate of inflation and that it never changes. (Without that predictability your plan is flawed anyway).

    Each year, borrow X+inflation (to keep real spending the same, so it's compounded) at the same rate Y for the same term Z.
    Even though you're borrowing the same amount (in real terms) because you're now having to use some of that money to pay the interest payments on the previous borrowings, your spending power isn't go up with inflation at all.

    E.g. with Z at 40 years and Y at 2%, the year before you pay off the first gilt your spending power with the borrowed money (i.e. how much you can buy with what's left after paying interest) is half of what it was in year 0. The year after (and each subsequent year) your spending power is 0. You're now using the whole of the new debt to pay the interest of all previous loans, and the principle of the oldest one.
    With Z at 40 years and Y at 5%, you're down to 15% the year before paying off the first gilt, and again at 0 forever after.

    Actually, now I've done the maths, Z is irrelevant. Unless you adopt a strategy of recycling your debt: At year Z, borrow an additional X to pay off the original principle. That strategy yields an increase in spending power at year Z, but at year Z*2 you start paying more in interest than you're borrowing. (That amount tends towards zero over a long period).

    Of course, there's a massively flawed assumption in my calculations: Y is very rarely going to be both the interest rate, and the rate of inflation. Occasionally the interest rate will be below inflation (e.g. in the UK at the moment) but often it will be higher.

    Unless I misread the numbers (which is very possible, I'm not an economist) the Bank of England shows yields higher than inflation for 14 of the last 15 years. (It also shows yields lower than inflation for the next 7ish, then higher again for the subsequent 13ish - they only forecast 20 years).

    As soon as the interest rate rises above inflation, you start losing money on your borrowings.

    In short: Practice fiscal prudence. Don't go into debt (except as a demonstration of your financial health - don't even ask me how that one works). Balance your books and don't rely on inflation to mitigate your old debts.

    Modern democracies go into debt because governments spend money that they don't have to try and get re-elected.

  • Re:First Time (Score:4, Interesting)

    by gmack (197796) <gmack@innerfir e . net> on Tuesday January 01, 2013 @09:09AM (#42440841) Homepage Journal

    Speaking as someone who has actually spent a considerable amount of time watching the European crisis unfold, that economist is full of it. Europes problem is that many countries were deficit spending during the good times and are now borrowing even more to cover the bad times and investors (the people who buy debt) are getting scared. The crisis started when the cost of borrowing went up for Greece to the point where they could not afford to borrow money to continue keeping their government functional. What we have right now is Germany borrowing money on behalf of Greece while Greece, Spain and Italy rush to cut their budgets before Germany loses the ability to help them.

    Austerity sucks but hitting the end of their ability to borrow money would cause immediate budget cuts of multiple times worse than the current cuts.

  • by BlueStrat (756137) on Tuesday January 01, 2013 @11:17AM (#42441497)

    The top 1% control 43% of the wealth of the nation. ...gosh, that's awfully close to the amount of income tax they pay. Shit, don't let that get out, it might hurt their pity party.

    That's all fine and good for the "get those rich guys and TAKE what they have!" crowd of useful idiots that socialists and communists stir up by appealing to envy and greed, but it still doesn't address any of the points I made, now does it?

    Is it fair that half the people who vote on taxes don't pay any, and another quarter pays a relatively very small share? Why should they care if the tax rate is ridiculous?

    That's mob-rule, nothing less. That's armed robbery by the non-taxpaying majority using the government as the stick-up man and fall-guy.

    You also didn't have any answer for this:

    And, do you think the rich will just wait around to have their wealth confiscated? Ask the French actor Gerard Depardieu. When the rich move their wealth and themselves out of reach, who do you think the government will come after for their tax-money "fix"?

    Also, see all the rich that are fleeing NY and CA, many of whom are choosing to leave the country altogether. Corporations have been fleeing for decades now, and now it's coming down to individuals. Do we wait until there is no manufacturing, no jobs, and no investment capital left before we decide that, just maybe, raising tax rates...yet again...on the minority actually paying taxes in order to redistribute it to others who do not pay taxes is not the answer?

    I'm sorry, but even the simple math doesn't work. There's no way that raising tax rates can bring in enough revenue to sustain the current government spending, unfunded liabilities, and entitlements at anywhere near their current cost without a collapse.

    Even if the Democrats raised all the tax rates they want, by as much as they want, unopposed by anyone, it would still be a drop in the ocean and have no real effect on the fiscal collapse that's in our near-future if major cuts, like 20-30-40% or more in government spending, are not instituted post-haste.

    Besides, hell, even _*I*_ have a better track record than Timmy "TurboTax" Geithner does!

    Strat

  • by Paul Fernhout (109597) on Tuesday January 01, 2013 @12:44PM (#42442135) Homepage

    http://en.wikipedia.org/wiki/Money_as_Debt [wikipedia.org]

    Basically, the USA uses a token system to ration the output of our industrial base. We call these Kanban-like tokens "fiat dollars". While such tokens could legally be printed in any needed quantity by the US treasury, they way most are issued in practice is by creating debt through borrowing from the semi-public Federal Reserve. If the US was to have a "balanced budget", the money supply of fiat dollars would be restricted and we would have an even worse economic depression. That is the biggest difference between government debt and household debt.

    Another difference is related to getting out of debt. Because these tokens (as paper of as bits in a computer) are accepted internationally, the US can create "debts" in terms of tokens in banking computers exchanged for real goods from China and real physical materials like oil and ore from elsewhere. If China or other countries come to collect the debts in the future, what do they have to collect except some ones and zeros in a computer? If they demand paper tokens, the US government can just print them and call is "Quantitative Easing". If a US household tried that, it would be illegal and would be called "counterfeiting". So, it is a good confidence game for the US government as long as you can run it -- with the downside though that the USA has exported all its manufacturing know-how to China in the process and is now dependent on China which gives China a lot of physical authority over the USA. Essentially, the Chinese people have paid a tax by consuming less so that the Chinese society could rapidly industrialize and gain this power over the USA (rather than, say, defer consumption to build up a huge military like the US did).

    That omission aside, your points on good ways for the USA to invest in its future are great!

    One other idea I might add is that "retirement" should be replaced with a "basic income" for all from birth. Why should old people get a basic income and medical care (Social Security and Medicare) when younger people and their parents do not? We could divide equally 50% of the US GDP as a basic income and then let people compete over who gets the rest. That will help deal with the issue of increased structural unemployment from increasing robotics and other automation, expanded voluntary social networks, improved subsistence production via solar panels and 3D printers, and more effective government planning via the internet -- which can all reduce the need for paid employment.

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