Posted on 11/11/2012 5:58:13 AM PST by Dartman
Edited on 11/11/2012 6:51:02 AM PST by Sidebar Moderator. [history]
..and why Canadians should care.
Since we’re going to be hearing a lot about the so-called “fiscal cliff” and raising the debt ceiling of the United States over the next few months, here’s a primer on what’s going on.
The “fiscal cliff” refers to $560 billion in tax hikes and expenditure cuts set to occur in the U.S. beginning Jan. 1, 2013.
On the plus side, this would cut the current U.S. deficit of $1.17 trillion almost in half.
On the down side, the non-partisan Congressional Budget Office says the sudden imposition of $560 billion in tax hikes and spending cuts on the still-fragile U.S. economy would cost two million domestic jobs, drive U.S. unemployment up by a full percentage point above 9%, and send the American economy back into recession.
That, in turn, would have a negative impact on the Canadian economy, since we’re tied so closely to the Americans.
That’s why Prime Minister Stephen Harper last week urged President Barack Obama to address the fiscal cliff , after congratulating him on his victory, now that the U.S. election is over.
The fiscal cliff was created in the summer of 2011, a result of acrimonious negotiations between Obama and Republican House Speaker John Boehner to raise the U.S. debt ceiling.
Under American law, both the Democratically-controlled Senate and Republican-controlled House of Representatives have to agree to allow the government to borrow money so the U.S. Treasury can meet its day-to-day financial obligations.
As part of their negotiations to raise the debt ceiling in 2011, Obama and Boehner tried and failed to reach a $4-trillion, long-term agreement on tax and entitlement reforms to pay down the U.S. deficit, while getting the American economy back on a sound footing.
The impasse occurred because the Democrats were focused on raising taxes to reduce the deficit, while the Republicans wanted to cut government spending.
During the negotiations, the Republicans, later joined by some Democrats, threatened to withhold their consent to raise the debt ceiling, unless there was a long-term deal on deficit reduction.
Without an agreement to raise the debt ceiling, the U.S. Treasury would have run out of money, resulting in the U.S. government defaulting on its payments to foreign creditors like China, withholding Social Security payments from the elderly and failing to pay the military.
Even the threat not to raise the debt ceiling, which would have sent U.S. interest rates skyrocketing, was enough to send global stock markets reeling. It also caused the first downgrading of the U.S. government’s credit rating in history.
In the face of this, and having failed to reach a so-called “grand bargain” on deficit reduction, Democrats and Republicans finally agreed to raise the U.S. debt ceiling to its current level of $16.4 trillion, while deliberately designing the fiscal cliff as a poison pill for both parties.
In other words, the fiscal cliff raised taxes in a way the Democrats didn’t want and cut spending in a way the Republicans didn’t want.
The theory at the time was that this would force both the Republicans and Democrats to come up with a better plan before the fiscal cliff came into effect at the start of 2013.
However, as usually happens when politicians kick a problem down the road instead of solving it, nothing has been done since.
Now the fiscal cliff is looming for the start of 2013, with no new agreement in place.
Meanwhile, the U.S.’s current $16.4 trillion debt ceiling only provides the U.S. Treasury with enough money to operate until early 2013.
This means Obama and the Democrats and Boehner and the Republican now have to negotiate a new deal all over again.
The last time, they almost crashed the global economy with their reckless brinkmanship. Who knows what they’ll do this time?
What is a fiscal cliff?.Obama in office note last four years.
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Banks hold it as reserves.
And if you wonder why that is a problem, think about how it will feel if your money is worthless, buys NOTHING....food, gas, medicine, ammo.
Companies out of business. No jobs. Expect violence as Homeland Security tries to restore/keep order.
Frack. The more I think of this, the more I think it’s going to make Greece’s pains look like an bright Sunday afternoon picnic. :(
Why is it so urgent? We run out of money to pay interest due, government payments to SS, military pay, government employee pay just before the end of this year.
then the money velocity graph shouldn’t look like it does and the excess reserves of depository institutions graph definitely shouldn’t look like it does. The money is just sitting there in limbo according to the graphs. If it’s just going to sit there in reserve, what was the point of creating it in the first place? It was like raising the largest army the world has ever seen and then not using them to fight the biggest war the world has ever seen.
Fed used it to buy toxic debt from banks which now sits on the Fed’s books.
According to the graphs it's sitting in reserve. Why? The money was created to bail out main street as well as wall street but it clearly never made it to main street for some reason. So where is it really? The only people who truly know where the money went are the people who ultimately received it and the people who gave it away and they weren't required to tell us. It smells like theft by fraud to me.
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