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The Good, The Bad And The Ugly From The Fiscal Cliff Deal

The Good, The Bad And The Ugly From The Fiscal Cliff DealThe fiscal cliff deal contains more bad news than it does good news.  Yes, the tax increases on the middle class could have been much worse, and we should be thankful that Congress at least did something for the middle class.  Unfortunately, they didn't do enough.  Every American worker is going to pay higher taxes next year as a result of this deal.  The fiscal cliff deal represents the biggest tax increase in 20 years, and it is also projected to increase the U.S. national debt by an additional 4 trillion dollars over the next decade.  In the final analysis, U.S. government finances are still wildly out of control and we are all going to be paying higher taxes.  Not a whole lot to be excited about, and nothing has really been fixed for the long-term.  Our politicians have kicked the can down the road once again, but someday they will run out of road and all of this debt will absolutely crush us.  And of course a lot of our politicians didn't even really know what they were voting for.  The fiscal cliff bill was more than 150 pages long, and our Senators got the bill into their hands just 3 minutes before they voted on it.  So none of them actually read the bill.  But that is the way things work in America today.  The blind are leading the blind and everyone is mindlessly hoping that everything will turn out okay somehow.

For a few moments, let's take a closer look at the fiscal cliff deal.  There are some good things in there, there are some bad things in there, and there are some things about the deal that are downright ugly.

The Good

-One of the best things about the fiscal cliff deal is that income tax rates did not rise on the poor and the middle class.  This is great news for millions of families that are struggling to make ends meet each month.  A significant rise in income tax rates would have been crippling.

-The Alternative Minimum Tax will now be permanently adjusted for inflation.  This is something that I had screamed about in previous articles.  If an AMT fix had not been passed, approximately 28 million households would have been hammered with the Alternative Minimum Tax on their 2012 earnings.

-Millions of unemployed workers will continue to receive extended federal unemployment benefits.  We probably cannot really afford to keep doing this, but at least now there won't be millions of unemployed workers that suddenly have their only source of income shut off.  The next trick will be to find jobs for all of those workers.  Unfortunately, millions of our jobs continue to be shipped to the other side of the world.

The Bad

-Payroll taxes are going up for every American worker.  The fiscal cliff deal allows the 2 percent payroll tax cut to expire, and so now the average U.S. household bringing in about $50,000 a year will pay approximately $1,000 more per year in payroll taxes.  As a result, it is being projected that U.S. consumers will have $115 billion less in disposable income to spend in 2013.  Happy New Year American workers!

-The fiscal cliff deal did nothing about the new Obamacare taxes that went into effect on January 1st.  Many of these taxes will hurt the middle class.  To see an example of a receipt where a consumer was charged the new "medical excise tax" in Obamacare, just check out this article.

-The carried-interest deduction loophole remains intact, so incredibly wealthy hedge fund managers will continue to get away with paying very little in taxes.  If the rest of us are being taxed into oblivion, then they should share in the pain with the rest of us.  Of course I personally believe that the income tax should be abolished entirely, but none of our politicians seem interested in that idea at all.

-Income tax rates will increase for high earners.  This will hurt a lot of small businesses.  Many small businesses that earn more than $400,000 a year will now be faced with making some really tough choices.  Some may have to lay off workers.  The top rate will now be 39.6 percent, but when other federal and state taxes are factored in, many small businesses will now be paying a top marginal rate of well over 50 percent.  That is absolutely obscene.

-A compromise was reached on the estate tax.  The exemption was scheduled to fall to just $1 million and the rate was scheduled to go up to 55 percent, and fortunately Congress decided to do something about that.  As I have written about previously, that would have been a disaster for many small businesses and family farms.  As a result of the fiscal cliff deal, the estate tax will only rise from 35 percent to 40 percent.  The exemption for individuals will be about 5 million dollars and for couples it will be about 10 million dollars, and those figures will now be indexed for inflation.  A tax increase is never a good thing, but if Congress had done nothing things would have been far worse.

-The fiscal cliff deal contains a lot of pork.  In particular, it contains provisions that extend specific tax breaks related to Puerto Rican rum, electric motorcycles, biodiesel and renewable diesel fuel, the film and television business, and motorsports entertainment complexes.

The Ugly

According to the Congressional Budget Office, as a result of this deal the U.S. national debt will be about $4 trillion higher a decade from now than it would have been if Congress had done nothing.

The deficit for fiscal year 2013 alone will be about $330 billion higher than it would have been if Congress had done nothing.

So this deal has made our debt problems even worse.

Right now, the U.S. has a debt to GDP ratio of about 103 percent.  We are already well into the "danger zone", yet most Americans still don't seem very concerned about all of this debt.

The fiscal cliff deal contained hardly any spending cuts at all.  In fact, there was a 41 to 1 ratio of tax increases to spending cuts in the deal.  The Democrats definitely won this round.  But of course they had most of the leverage.  If Congress had done nothing, the middle class would have been absolutely devastated by all of the tax increases, and the Republicans were desperate to prevent that.

But now that the battle over taxes is done, the leverage is going to shift over to the Republicans for the next big fight.

The battle over the debt ceiling is next.  If Congress does not act, the U.S. government will soon not be able to borrow any additional money.  This battle will be one of the stories that dominates the headlines over the next few months.

If the Republicans want to do something serious about spending, now is their chance.  The battle over tax rates is already over, and there is no election in November.  The Republicans could conceivably say "NO" to a debt ceiling increase if they want to.  If that happened, the federal government would only be able to spend the money that it already has.  It would not be able to borrow more.  That would mean that we would have to start living within our means.

What a novel concept.

Of course there is no reason to believe that the Republicans in the House will suddenly grow a spine.  They have folded every other time that the debt ceiling has come up.  It will probably be the same again in 2013.

And Barack Obama is already saying that there will be "no negotiations" over the debt ceiling this time.  He expects the Republicans to raise the debt ceiling for him without getting anything in return...

"I will not have another debate with this Congress over whether they will pay the bills they’ve already racked up."

But the U.S. government cannot spend a single penny or borrow a single penny without the approval of the U.S. House of Representatives.

If the Republicans in the House want to ever get serious about government spending, the upcoming battle over the debt ceiling is a golden opportunity.

They could stop the Obama administration from piling up crazy amounts of debt if they want to.  All they need is the courage to take a stand.

During the first four years of the Obama administration, the U.S. government accumulated about as much debt as it did from the time that George Washington took office to the time that George W. Bush took office.

The Republicans have had control of the House for about half of that time.  That means that they have been willing accomplices.

So will they take a stand?

That is very doubtful.  Over the past few years they have exhibited the intestinal fortitude of a frightened chicken.  They will probably huff and puff a little bit, but in the end they will probably give in to Obama once again.

But what we are doing to our children and our grandchildren is so immoral that it is hard to describe.  We are stealing more than 100 million dollars from them every single hour of every single day, and we plan on leaving them with the biggest pile of debt the world has ever seen.  We should be absolutely ashamed of ourselves.

Why can't we just spend the money that we have?

What would be so wrong with that?

Unfortunately, that would mean such a painful downward adjustment in our standard of living that most Americans would freak out.  We are addicted to debt-fueled prosperity, and so we can't stop stealing from future generations.  We need their money to feed our addiction.

In the end, this gigantic mountain of debt is absolutely going to destroy everything that our forefathers built for us.  There have been some people that have been warning about this for decades, but the American people did not listen.

Soon enough, we will all pay the price for this foolishness.

Obama And Boehner - The Debt Ceiling Battle Comes Next

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  • http://www.facebook.com/people/Joe-Palladino/100001624813101 Joe Palladino

    Gary2 should like the deal, there is a tax right off in it for rainbow colored condoms so he can bang his dead room mate in the a$$.

  • Tim

    “According to the Congressional Budget Office, as a result of this deal the U.S. national debt will be about $4 trillion higher a decade from now than it would have been if Congress had done nothing.”

    The CBO’s projections are usually not accurate. I think it’s safe to expect much more than $4 trillion in additional debt over the next 10 years.

    • Hambone

      Uh, yeah.

      All of those tax increases presuppose there will be steady (or increasing) income or expenditures to tax. What do they base them on? Very aggressive estimates, to be sure.

      And does our government ever EVER EVER think of reducing or eliminating an entitlement once it’s handed it out?

      This makes me want to puke. I am so sick of our elected officials. I’m not putting this all on the libs either; the Republicans are just as bad.

  • Rodster

    If the Gubmint projects 4 trillion over the next decade that should equate to 12 trillion. ;)

    • MichaelfromTheEconomicCollapse

      Very good point.

      Michael

  • http://twitter.com/ChartistFriend ChartistFriend

    Thanks for another extremely well written article.

    • MichaelfromTheEconomicCollapse

      Thank you for reading it. :)

      Michael

  • markthetruth

    I believe this goes way beyond Obama . Its George Soros , Europe,China and the global economy . They want to make sure they can pull out before we fall.

    Welcome to our real new leaders. ours are just puppets.
    Obama and Paul Ryan look like mice
    Bohner looks like a red neck
    and so on..

    the end.

    • Hambone

      China owns us. I was trying to buy lag bots the other day, and there was nothing not made in China. I asked the guy at the hardware store if he had any fasteners made in the US. He looked at me like I was nuts.

      If they wanted to, they could put a strangle hold on our enconomy. I think they are waiting until they have a bigger piece of the pie before they do. They needn’t wait long.

      • Orange Jean

        The fact that so much of our food supply comes from foreign countries is what worries me the most…

        • El Pollo de Oro

          Orange Jean: Very good point. When the BRA’s debased dollar goes into cardiac arrest, think how much that imported food is going to cost. As Max Keiser recently said on RT, “currency debasement, by
          definition, is hyperinflation.”

  • Orac4Prez

    Dont worry about the Debt. Obama has the solution! He will simply mint a dozen or so $1 trillion dollar denominated coins and pay back all the debt to the Federal Reserve. That way the debt ceiling will drop to a manageable level and he will claim the first balanced budget in decades. Problem solved. Wont be any need to tax the rich or fret over cutting pennies from the budget! You just have to think like a democrat and everyone wins!! Come to think of it he could bail out the banks and swap their foreign currency reserves for a few easy to hold coins…

  • Hambone

    There is no chance the jellyfish who call themselves conservatives will stand their ground. This drives me insane. People are actually saying we avoided the fiscal cliff. Did we really? Is it possible we’re already in freefall and don’t know it?

    I heard a stat today on the number of people being paid with tax dollars (welfare, government jobs, etc) versus those in the private sector. We’re in deep kimchi, my friends.

    I hope the Chinese government does a better job ruling over us than the clowns in Washington. I also hope I get the day shift in the forced labor camp when they take over.

    What I really want to know is should I be learning Mandarin or Cantonese right now?

    It’s this kind of carp that makes me want to become a sith lord.

  • Mondobeyondo

    I can’t pin it down, but somethinIg about this fiscal cliff “deal” really scares me. Something about it isn’t right. Kind of like a hyena in sheep’s clothing.

    • Orange Jean

      I agree with you Mondo… only maybe it’s more like a rabid hyena in sheep’s clothing.

  • davidmpark

    Where I live we have a vast fortune of gold, silver, oil, methane, lumber, and much much more as raw materials. By federal and environmental laws we are not allowed to mine, harvest, nor collect it at all. The reasons are many, but all are not based in reality. The reality is, there are people that enjoy our pain. Sadists.

    We allowed them to have jobs that they are mentally and emotionally not able to fulfill. Many of these bureaucrats and politicians have multiple life failings that are well hidden by cover-ups, coercion, or silence by payoffs.

    We also have passed the point of no return. The debt is what will get us: it’s now far to big and those that stole the economy from the freemen are bleeding it. They treated our wealth like a junkie getting a fix: they get the thrill of shopping and thinking they are charitable and generous using other people’s hard-earned money. Now they have succeeded in locking up almost all natural resources unless it goes through them first and they can take what they want.

    Is what they take distributed to the poor? Very little is. What the vast majority goes to is… themselves. Higher pay, pensions, vacation packages, paid travel, luxuries, cars, meals, office decor – even their own taxes. They live as princes of the earth on the backs of their peasants.

    And this will cost them their souls.

    How many times did God command men not to act in this manner. How many times did the prophets in the thousands of years in records were we warned not to do this. How many civilizations have ended in misery, disaster, cannibalism, and total war because of their leaders’ iniquity. HOW MANY!

    This is what men and women wanted for this culture. Feels good; don’t it? This is your life. We warned as many as we could to prepare. Turns out the time for preparation has past. Now the scales must balance.

  • cleo

    We’ve already fallen over the fiscal cliff…..we’re in deep doo doo. Hang on tight!

  • Beanodle

    The debt mountain will crash before our grandchildren get to inherit it.

  • Syrin

    When was the last time the CBO was right about ANYTHING ?!?! Seriously, why do we even quote these pieces of garbage? Take the CBO estimate and multiply it by a factor of 5-10 to get reality.

    • Tim

      Yeah. The CBO’s projections are based on unrealistic assumptions regarding economic growth and spending levels.

      If there’s one thing we can always be sure of it’s that any projections the government comes out with will be understated.

  • Alasha

    Ok I have not posted for awhile … What is with the large balloon comments on the top of the page and who are the people….. Anybody? Michael? lol

    • Mondobeyondo

      I’d take a guess, that there’s a 103.7% chance that it’s Michael’s pic on the banners. hehehe

      • MichaelfromTheEconomicCollapse

        Yes, that is me. My wife figured that you all might want to know what I look like finally.

        Michael

        • Alasha

          nice touch….. and of course your wife was right. smile

      • Alasha

        got it! thanks, Mondobeyondo and Happy New Year, bud!!!

  • Mark

    The spending and the debt mean very little anymore. We know that neither of the 2 parties will stop the party. What concerns me is policies like NDAA or reading your e-mail. When the welfare checks will not be enough to buy a sack of food, the riots will tear up many neighborhoods. At least the fools that bought the debt will be paid in dollars, LOL We are in for a rough ride folks, you better hold on tight.

  • stingray

    wish go back 1930

    • Tim

      Why? That was the beginning of a very difficult time for millions of Americans, not unlike today.

    • Mondobeyondo

      Go back to 1930? No way!
      Do you know what happened after 1930?

      • Mondobeyondo

        Yes, you’re right! 1931, and 1932, and 1933…
        Oh please no!!

  • chilller

    Back in August of 2011, the Budget Control Act was created to prevent future occurrences of us hitting the debt ceiling and defaulting by forming the Joint Select Committee on Deficit Reduction, also known as the “super committee…remember those guys? They designed and were responsible for all the budget cuts in the fiscal cliff which was supposed to go into affect to prevent us from hitting the debt ceiling…again. So, in a little over 1 year’s time this so called “super committee’s” feeble attempt to rein in spending turned out, not only to be a miserable failure like most everything our guberment does, but now they want to eliminate the debt ceiling altogether! Lump in 2 more QE’s, more taxes and more spending on top of the failed Budget Control Act and one gets a picture of just how bad our political system operates and how incompetent and bumbling they lawmakers charged to run the country actually are. Unfortunately, it’s also clear how desperate they’ve become because they know everything they have attempted to control spending has failed.

  • Ralfine

    “-Income tax rates will increase for high earners. This will hurt a lot
    of small businesses. Many small businesses that earn more than $400,000
    a year will now be faced with making some really tough choices. Some
    may have to lay off workers. The top rate will now be 39.6 percent, but
    when other federal and state taxes are factored in, many small
    businesses will now be paying a top marginal rate of well over 50
    percent. That is absolutely obscene.”

    Sorry, can you elaborate on that?

    What do you mean by “earn”? Is this sales, income before tax, income after tax?

    If I earn something, I have it in my pocket already, that is, after tax. Because that tax is not what I earn but that politician and policeman and judge.

  • Ralfine

    Just heard, that Warren Buffett invested some billions in a solar power plant in California. Why would he do that?

    • Robert (qslv)

      Tax Credits

  • Synick46

    Thanks for summing it up, Michael.

  • istokov

    Элите не выгодно увеличение количества богатых людей,поэтому она будет препятствовать развитию бизнеса среднего класса.Элита никогда не допустит уменьшение расстояния между собой и обычным населением.

    • K

      This is translation The increase of quantity of rich people is not favorable elite, therefore it will prevent business development of middle class. The elite never will admit reduction of distance among themselves and the usual population

  • broke

    “Our politicians have kicked the can down the road once again, but someday they will run out of road”, We are past the end of the road. This is a worn out, phrase.

  • Jodi

    Really good article to share with others who don’t understand the fiscal cliff. Unfortunately, the people who choose to close their eyes and plug their ears will continue to ignore.

  • Crazy Prepper Girl

    MICHAEL– WE ALREADY KNOW THIS STUFF.
    TELL US SOMETHING WE DON’T KNOW!

    • MichaelfromTheEconomicCollapse

      I will try to do better. :)

      Michael

      • RICHARD

        Michael, your doing a great job. What i watch is the numbers and in your posts it shows how they always keep going up.

  • 2Gary2

    This is why we need to tax the rich hard–at least 50%:

    Over the last 20 years our per capita Gross Domestic Product has
    grown — so has our per capita productivity. That means that each of us
    can produce more goods and services with the same amount of work.

    But the wealthiest two percent has siphoned off all of that economic
    growth, and as a result everyday Americans haven’t had the money to buy
    the new products and services that the economy produced. That has been a
    formula for economic stagnation — and the demise of the middle class.

    Long-term economic growth requires that the fruits of that growth be
    spread fairly throughout the economy or it cannot be sustained. It’s
    that simple.

    • Joe Shmo

      I think you can’t tax “the rich” enough to fix this. Would you consider dropping the income tax and going “forward” with a national sales tax? That way everyone could contribute “their fair share”?

      • 2Gary2

        national sales tax is way too regressive as would be a flat tax. They may sound good but in reality they are nothing but a tax cut for the rich.

        • http://www.facebook.com/people/Shmeggle-Marxist/100001597489122 Shmeggle Marxist

          libs are a disgusting cancer in the USA

          • Nickelthrower

            If we are to play that game then as an Anarchist, I find all Statists to be worthless to include both the Left and the Right. 100% uneducated worthless.

            How do you like that?

      • sharonsj

        What you don’t seem to understand is that if you don’t tax the rich and the big corporations then you, the average taxpayer, is stuck with the bill. And if you bothered to read what economists say about a national sales tax (or a flat tax) is that it falls the heaviest on the middle and lower classes, who spend all or nearly all of their income.

        Again, where’s the fair share from the banks, the oil companies, the hedge funds, Disney, NASCAR, big pharma, big ag, etc.? (all of whom just got great corporate tax breaks without any spending cuts to equal it out while the Repubs demand spending cuts before they’ll help hurricane victims)

        • Joe Shmo

          Yes, you make my point… where’s the taxes from corps that avoid? Flat tax will take a percentage of their earnings. What’s not to like? And the poor & middle class would no longer pay income tax. I don’t think we’re connecting on this.

      • davidmpark

        12% across-the-board flat tax is better than a national sales tax.

    • Matt R in MN

      hmmm… I usually don’t respond to these posts by Gary, but this is such a simplified view of economics it scares me. Only one point that I will make: When you say “the wealthiest two percent has siphoned off all of that economic growth” what does that exactly mean? To me, this has no understanding in reality. When anybody makes money, unless they sit on a literal pile of cash, the money is usually placed in banks – which is reinvested into other companies, individuals seeking home loans, etc – or spent, which is the quintessential Adam Smith’s ‘trickle down’ theory. I’m by no means rich, but I have a decent savings, which is invested in a bank – which is being lent out on a daily basis to others looking to use the money, hopefully for overall economic gain. The free market economy concept can be difficult to intellectualize sometimes, but it is the only mechanism of true freedom. Please read or listen to Milton Friedman when you have a chance.

      • 2Gary2

        The simplest answer is usually the correct answer as it is here. Wages for the VAST majority have been stagnant for decades due to the productivity gains being stolen by the 1%. This has reduced purchasing power of the 99% helping to cause bubbles with people borrowing money to maintain their standard of living on declining wages. So yes you bank deposit was reinvested in debt to the 99%.

        In the past wages and productivity both rose together (mainly thanks to unions) now wages are stagnant as the productivity wealth is hoarder by the 1%. Not all investment is productive.

        ps–there has never been a free market ever, nor will there ever be.

        • http://www.facebook.com/people/Shmeggle-Marxist/100001597489122 Shmeggle Marxist

          LMAO

    • http://www.facebook.com/people/Shmeggle-Marxist/100001597489122 Shmeggle Marxist

      LMAO at cancerous libs

  • 2Gary2

    The estate tax is so future generations can have the same opportunity.

    How can so many conservatives fall for the death tax line is beyond me. Do not you dolts realize this estate tax will never impact you???

    The right has never been able to produce even 1 example of a family farm being impacted by this.

    As usual Michael is shilling for the rich on this point

  • 2Gary2

    Michael–you are correct about the carries interest-that is income pure and simply but in an plutocracy that is how things work. Term limits for all congress/senate

  • 2Gary2

    conservatives got rolled big time—$41 in spending increases for every $1 in spending decreases. I have been saying like forever that the GOP is history.

    Sucks to be a tea bagger ha ha ha ha

  • none

    GOOD NEWS, Michael:

    I saw your posting

    “Constructing a radio frequency
    weapon is not that difficult. In fact,
    you can find instructions for how to build them on the Internet”.

    And then I thought, ““it can’t
    be that easy””!

    Then I realized that you would
    restore my faith in your web site by showing us where the instructions are
    located!

    • MichaelfromTheEconomicCollapse

      I don’t want any of you to actually build such a weapon. ;)

      Michael

    • davidmpark

      Building one is not difficult, but I personally would recommend against building and using one due to the collateral damage. Yes, a small device would take out a city block, but anyone with medical devices or pace makers would immediately face a life threatening situation. EMP’s are not harmless, non-lethal weapons.

      Also, basic EMP weapons use explosives. Yes, they do and I won’t say how. The explosion alone can maim and kill with the casings and metals used to produce the EMP. If using one to protest taxes or government, you’ll most likely end up with a mass murder.

      Best not to bother with it.

  • Wally

    A little strange isn’t it. You are hearing nothing or very little from the “Conservative Members”. Paul Ryan has been non-existent and he voted for the bill. He used to be everywhere before he was nominated to run with Romney. What about Issa from California, not much coming from him either. In my opinion the few true conservatives in Congress are being told or should I say threatened or worse to shut up and play ball. Chicago politics at its best. One day soon this all comes to an end and hundreds of millions world wide will pay the price.

  • amp7

    I am new to this blog and like to ask a general question.

    Money has to sit somewhere; so if all large western economies continue printing money out of thin air and continue keeping interest rates near zero, is there any reason why money managers would move money to another jurisdiction?

    Does it not boil down to keeping wealth where one feels it is least likely to be confiscated? To my mind the numbers on the balance sheet only become problematic if someone else’s balance sheet starts looking a lot better.

    • Matt R in MN

      You’ve asked a very expansive question. With my limited understanding, you are in point correct. Ppl will trade in currencies where there is still perceived value. Take the Euro for instance, ppl still trade in this currency because the EU exists, but should the EU collapse, ppl will be vying to trade in anything that has value (i.e. most likely a new currency issued by their home country). BTW, the EU has been declining in value and becoming more worthless because of the debt issues it is having – mainly Greece and Spain close to default. And this is what makes the current situation so difficult. The countries themselves could get out of the debt situation right this second by printing enough money to pay off all their debt, but you can bet that in most cases (take the U.S.A), a $16-17 trillion infusion of new cash into the economy would devalue the dollar so much (ergo increase inflation so much – think $1,000,000 for a loaf of bread), that doing so would be economic suicide – see Weirmar Republic. So I don’t think ppl are worried about confiscation of their money so much (unless you are in a communist corrupt country – Argentina comes to mind), but rather will their money still hold value in the future? But then you have money not tied to anything of perceivable value (gold standard) vs. most countries current situation of having nothing backing its funds but the full faith and assurance of repayment by that country. Gets pretty complex, but that is why the dollar has been the vehicle of choice for most investors, because the other available currencies are more terrible. But that is changing….

      • amp7

        Like you, I am just someone trying to make sense of this strange economic environment in which we find ourselves. I do however find it useful to discuss/question conclusions drawn from history.

        You refer to the Weirmar Republic and Argentina as examples of what could happen if hyperinflation were to set in. I agree but the question is, will it?

        My simplistic understanding of how hyperinflation evolves is as follows. As people see the potential for hyperinflation, they say to themselves I don’t have to sit here and watch my wealth evaporate. I will simply convert my remaining wealth into something portable like gold and move. As wealth leaves the country, companies shut down and more become unemployed. The government responds by printing more money to support these unemployed individuals which results in a decrease in the value of the country’s currency. This in turn increases both the need for imported goods as fewer goods are produced locally and the cost of those goods.

        The fundamental difference between the historical examples you provide and now is that when these countries went into their inflationary period, the rest of the western world was relatively stable from an economic perspective. Wealth had a reason to leave and somewhere to go. Today, most of the western world is in a mess; hence nowhere to go and IMHO, no catalyst for hyperinflation.

        We simply get to sit in a state of limbo waiting for something to change as governments eat away at our savings. Whether this results in inflation where cash is trash or a depression where cash is king remains an open question in my mind though I lean towards depression.

        I welcome a discussion on how one could get hyperinflation in an environment where capital has nowhere to go that is better than where it is. I continue to believe that the size of a country’s debt is not an issue as long as other countries have similar levels of debt.

    • Mondobeyondo

      Well, to begin with, “money” created out of thin air isn’t really money. It’s an illusion of money. There is nothing backing it up. No gold, no silver, no copper, no trees, no rocks. It’s just vapor. The only reason it has value is because the Federal Reserve says it has value. That’s it.

      Our money used to be backed by gold. You could redeem a dollar bill, and get a dollar’s worth of gold in return. That ended in 1971.

      • amp7

        Our wealth is measured in FIAT currency; even gold’s value is measured relative to the US dollar, a FIAT currency. Good or bad, it’s the world in which we have to survive.

        Many are concerned that increasing US debt will cause hyperinflation. I find it difficult to see how this comes about in an environment where capital has no better place to go. It’s a bit like cars driving down the highway at 160mph and accelerating by 10mph every year; as long as drivers have the driving skills and no one’s engine blows, everyone gets home safe. That said, driving at ever increasing speeds causes wear on the engines.

        The near zero interest rate policies create wear for those living on Main street. At some point, somewhere in the world, those living on Main street will have been worn down to the point where they elect an extremist government and that’s when the engine blows (they default). These economic cars crash into one another and little cars get crushed.

        As a guy on Main street, I need to know if this result in inflation where cash is trash or deflation where cash is king? I suspect an initial rush to precious metals followed by depression but welcome differing opinions describing scenarios in which hyperinflation enters the picture.

  • Brian

    I say tax the rich 95% and see how. they react

    • Matt R in MN

      A.K.A. France. Not going very well.

      • Ralfine

        Now Depardieu will need a working visa when he wants to film in France.

  • DB200

    I am still a bit puzzled by this over-the-cliff stuff. If no deal was reached then 606 billion dollars would be siphoned off the US economy by either tax increases or cost cuts. The federal deficit in the first two months of the fiscal year was 290 billion dollars (thus representing a yearly rate of 1740 billion or 1.74 trillion). So we are talking about 4, maybe 5 months, of deficit.

    From a macro-economic perspective the fiscal cliff is not a big deal compared to a deficit of more than 11% of GDP. Such a huge deficit can not be perpetual, so sooner or later a much bigger fiscal cliff will be reality.

  • Orange Jean

    Good overall summary, Michael!

    I think much of this “fiscal cliff deal” was just smoke and mirrors. The sequestration cuts have not gone away, by the way… and I don’t consider adding huge additional spending a good thing.

    On a personal note: Today I got my first pay check with a decreased net due to increased payroll/ SS deductions. I will be getting about $1500 per year less of my earnings than last year.

    I work for DOD, so also expect to be affected some way by the sequestration cuts (we got notice from Panetta on that – he said we probably wouldn’t see cuts in first few months, they do not expect to cut active duty military… but civilians can expect possibly unpaid furloughs, RIFs or lay offs). This past year we already had major cuts in travel which affected our ability to put our annual conferences (which were done not only to share information, but to allow health care providers in the military to get the continuing ed credits they require to keep their licenses).

    The supposed FED salary increase was cancelled (I think that was a GOOD idea not to do it… and I think that was ridiculous that Obama put out that executive order in the first place, given our fiscal situation ).

    Fortunately I am almost debt free (2 more car payments and that’s all!) … and by being frugal I have a bit of a “slush fund” so I could absorb a month or two of unpaid furlough. However, getting laid off at 62 would be a problem. I have not worked as a Fed long enough to get much of anything for pension (less than your average welfare check BTW); for those of you who don’t know this, they changed the pension system significantly about 20 yrs ago. If I were laid off I am not yet old enough to get SS (although I paid in since I was 16), could not get paid medical except thro COLA at a huge cost. Unemployment here in VA is so low (max under $400/week;no matter what your prior earnings), so I’d need to find another place to live… while trying to find work at my age, despite good work skills and education… I don’t feel too optimistic about my prospects if that were to happen. So in the meantime I count my blessings that I still do have a job.

    Despite how this could affect me personally in a most negative way in the future, I really think we need to dig in, tighten our belts and cut Federal spending significantly or we will never be debt free…

  • Mrs. Jabieski

    As my husband said, this deal will do nothing for, if not hurt, our economy. It’s like re-arranging the deck chairs on the Titanic.

  • 2Gary2

    sucks to be you. STFU and pay

    • ABC

      Your comment shows that you have no manners Gary. Even if “the rich” pay, you will always have no manners and no money because of your bad attitude. You should be angry with your parents not because they will not, or did not, leave you a large inheritance, but because they did not teach you any manners.

      • 2Gary2

        I get sick of rich conservatives whining about taxes. They are already under-taxed as it is.

  • istokov

    Элита по сравнению с обычным населением живут как боги на Земле.Все места на Олимпе заняты,появление новых богов из среднего класса тревожит элиту,поэтому она обязательно создаст новую систему препятствующую появлению новой элиты.Произойдёт перестройка мировой финансовой системы в рамках которой многие проблемные банки будут закрыты.Новая система закроет доступ в число элиты новым кандидатам.Элите не выгодно не только увеличение количества богатых но и вообще увеличение количества населения Земли.Элита в настоящее время покупает уже не острова а територии равные не большим государствам.

  • http://www.facebook.com/profile.php?id=100000633875894 Randy Townsend

    Only when the middle class and the poor are taxed by this government will the people begin to complain. That’s why the middle class and the poor will not be treated like everyone else.

  • JW

    Nothing real is destroyed by a bunch of symbols which the debt really is. The debt is about the ownership of real capacity to produce at its best and at its worst the ownership of promises to pay which never should have been made. But it is all about ownership of the promises to pay exemplified by each contract. Not one building will be blown up or road plowed under if this debt were to suddenly disappear. (Repudiated?)

    But both the above will happen if the fear of debt acquisition prevents needed repairs from being done on existing infrastructure. That is real.

    Incurring debt to support financial asset prices is not real. Worse, if the debt is used as an excuse not to invest in the real economy the effects will be real.

    So long as the real needs of the economy are met it matters not at all if the debt grows to infinity. If the real needs are not met that is a real concern. Something then must be done.

    But in the word infinity is the key to the resolution of this problem. An infinite debt can not and will not be honored. There is the ultimate fate of the U. S. debt.

    At some point conviction will rise that the U.S. debt will not be meaningfully repaid even in the short run. At this time its usefulness as a means of financing the government will end. At this point under one guise or another or even openly it will be repudiated.

    This will be painful to many but not necessarily catastrophic. The key will be in the available adjustment time. Suppose it were known today that the debt would be repudiated tomorrow. Who would be irremediably hurt? Suppose one year from now who would be so hurt. Suppose five years from now who would be so hurt?

    The above calculation is better known as determining the risk of default (and its consequences). It is done all the time. As we draw closer to the true date people will be looking at their calculations and adjusting. Many may still be hurt in the adjustment for failure to take proper steps ahead of time. (This includes political action.) But the debt itself when it passes also will have passed from people’s concern.

    The real consequences of insufficient investment will be around for a long time to come.

    I understand that in the ancient world a year for the cancellation of all debts was known as a Jubilee year. All hail the Jubilee. Our grandchildren may not have housing, schools, roads or even clean water but they will have no debt. One way or another they will have no debt.
    .

  • Washington76

    Obama’s Secretary of State Candidate Has Significant Financial Stake in Tar Sands Companies November 28, 2012

    http://www.treehugger.com/environmental-policy/obama-secretary-state-candidate-has-significant-financial-stake-tar-sands-companies.html

  • danieljosephlockwood@yahoo.com

    There will be spending cuts under Obama. This article is more labeling as if this were all an ‘Obama Spending’ problem. IT WAS NOT.

    $3.5 trillion – Economic changes (including lower than expected tax revenues and higher safety net spending due to recession)

    $1.6 trillion – Bush Tax Cuts (EGTRRA and JGTRRA), primarily tax cuts but also some smaller spending increases

    $1.5 trillion – Increased non-defense discretionary spending

    $1.4 trillion – Wars in Afghanistan and Iraq

    $1.4 trillion – Incremental interest due to higher debt balances

    $0.9 trillion – Obama stimulus and tax cuts (ARRA and Tax Act of 2010)[36]

    The U.S. budget situation has deteriorated significantly since 2001, when the CBO forecast average annual surpluses of approximately $850 billion from 2009–2012. The averagedeficit forecast in each of those years as of June 2009 was approximately $1,215 billion. The New York Times analyzed this roughly $2 trillion “swing”, separating the causes into four major categories along with their share:

    Recessions or the business cycle (37%);

    Policies enacted by President Bush (33%);

    Policies enacted by President Bush and supported or extended by President Obama (20%); and

    New policies from President Obama (10%).

    We will move forward, with spending cuts, and yes, increased tax revenue. We are slowly growing out of this and will continue to, so long as Republicans are stopped from impeding the progress that is being made. You will destroy growth if you make sweeping spending cuts. Repubs want too many spending cuts and insist small businesses somehow have no means of paying more. Ridiculous argument.

  • John Mayo

    ” The fiscal cliff deal contained hardly any spending cuts at all. In fact, there was a 41 to 1 ratio of tax increases to spending cuts in the deal. The Democrats definitely won this round. But of course they had most of the leverage. If Congress had done nothing, the middle class would have been absolutely devastated by all of the tax increases, and the Republicans were desperate to prevent that.

    But now that the battle over taxes is done, the leverage is going to shift over to the Republicans for the next big fight.

    The battle over the debt ceiling is next. If Congress does not act, the U.S. government will soon not be able to borrow any additional money. This battle will be one of the stories that dominates the headlines over the next few months.

    If the Republicans want to do something serious about spending, now is their chance. The battle over tax rates is already over, and there is no election in November. The Republicans could conceivably say “NO” to a debt ceiling increase if they want to. If that happened, the federal government would only be able to spend the money that it already has. It would not be able to borrow more. That would mean that we would have to start living within our means. ”

    Agreed with most of the article except this part. It doesn’t matter if it’s Dem or Rep, result is more debt in a slightly different scale.

  • BeechBaron

    ONE PROBLEM WITH YOUR ARTICLE. You assume there is a difference between Republicans and Democrats!

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