Friday, December 7, 2012
FISCAL CLIFF: Part 3
There are two sides to the fiscal cliff issue: the rest of the world's and mine (plus a few wise colleagues). My arguments are provided in What Fiscal Cliff? and Fiscal Cliff: Part 2. I'll toss in a few fiscal cliff cartoons (and while I don't reference them, the creators are identified). They detract from my message, but this whole matter is a kabuki play of pantomimes anyway, so let me at least balance my presentation by providing some graphic examples of the opposition's attitude.
In the overwhelming majority are people like you, the U.S. Congress, and, even the White House. Here is a well-made video clip (spoof of Full Metal Jacket and Star Wars) provided by a friend who is approximately 180 degrees in opposition to my point of view. I could mention his name, because he won't mind it, but he thinks we are at the cliff of doom, while I continue to fiddle with hope. Anyway, that 6-minute satire is really entertaining and represents how most of you feel about the reasons for our economic woes.
First of all, the fiscal cliff is this conundrum having to do with 31December2012 (the cliff) and the feared crash of our economy (thus the horrendous fiscal repercussion) if our decision-makers in D.C. can't reach resolution on the Budget Resolution Act of 2011, which would then automatically terminate various (50ish in number) tax cuts and breaks, while at the same time instituting a wide range of budget cuts, mainly related to defense and entitlements.
In your hearts, most feel that these measures reflect what we need to do anyway over time. It's just that this trauma could well sink us back into recession, plus force us to pay more taxes with maybe loss of a job. That is the perceived conundrum: either do something this year and hurt over time, or do nothing and hurt now.
Here is where I differ from almost everyone. You need to read my postings to gain the details, but, first, what needs to happen is what Congress and the White House will do anyway by Christmas (or a few days later so that Barack needs to sacrifice returning to Hawaii) to continue the charade, which will be to kick the can down the road and make minor adjustments with an intention to deal with this matter next year or later. The world markets will feel soothed and nothing will crash, unless Greece really sinks or Israel attacks Iran and oil supplies are seriously affected. This is actually okay (the part about not crashing, not the Greece or Israel issues), for the stock market is dangerously metastable, and no decision could trigger the onset of a recession at best.
1. Do nothing to upset anything and do something to keep the current equilibrium, as long as interest rates stay low (less than 2%). In fact, heck with the national debt, borrow more. My Huffington Post article of 26May2011 tells why. In short, the Federal budget is not like yours. You need to keep a positive or zero balance. Not so for our national government, nor the private sector. Companies borrow at low interest rates to make more. Look on our Feds sort of like a firm seeking the highest possible profit. Yes, this means our national debt increases, and we need to pay interest on this burden, but consider the value of what this borrowed money is doing: preventing the depression of 2009. while raising our prominence militarily and economically. Over the past two decades we have become by far the only supreme nation.
2. Let's say inflation comes come. Rates jump to 5%, maybe 7%. We then become a lending nation. China has its money stuck in the U.S. for five to ten years. They can't just take it out. This reduces our national debt.
3. This current debt/GDP syndrome has occurred after every major war (Civil, WW I, WWII--when this ratio was higher than today--and the Middle East Wars):
I should add a worrisome note about this graph. Things began to get worse after the great energy crisis thirty years ago. You can expect another debt/GDP jump when oil jumps to $150/barrel. Yes, we can soon become the biggest producer of oil in a few years because of fracking, but I further worry about the effect on Global Warming.
4. We need to reduce defense spending, 10%/year for ten years. This is the 10% Solution for Peace, first published more than 50 months ago in the Huffington Post, and reinforced several times, more recently on 6July2010. We have no mortal enemy anymore. These funds can go towards our infrastructure, education, global warming, sustainable energy, etc.
5. To anticipate the coming inflation, it would be smart to begin increasing taxes. We are now paying at the lowest Federal tax rate since 1950. Start with the private sector and the rich, for:
Here is the overall tax situation:
Super Typhoon Bopha (Pablo) killed more than 500 in the Philippines, with 400 still missing. 310,000 are homeless. Watch a clip.