informationliberation
The news you're not supposed to know...




An Introduction to Austrian Economics: Understand Economics, Understand Everything
The Century of the Self: The Untold History of Controlling the Masses Through the Manipulation of Unconscious Desires
The Disappearing Male: From Virility to Sterility

The Obama Deception: The Mask Comes Off
Operation Gladio: The Hidden History of U.S. Sponsored False Flag Terrorism in EuropeThe New American Century: The Untold History of The Project for the New American Century
(more)
Article posted Nov 13 2012, 8:03 AM Category: Economy Source: Peter Schiff Print

Extend and Pretend

by Peter Schiff

Now that President Obama has been re-elected, the media is finally free to focus on something besides the clueless undecided voters in Ohio, Florida, and Colorado. The brightest and shiniest object that has attracted its attention is the "fiscal cliff" that we are expected to drive over at the end of the year unless Congress and the President can agree to turn the wheel or apply the brakes.

Fresh from his victory, the President took time today to let the nation know how he proposes to avoid the cliff: to raise taxes on those Americans who make more than $250,000 per year. He made clear than no one making less than that will be asked to pay any more. The two percent of taxpayers that the President is targeting earn 24.1% of all income and pay 43.6% (as of 2008) of all personal federal income taxes. Sounds like a fair share to me. But the four or five percent tax increases on those earners that are being proposed would only yield around $30 to $40 billion per year in added revenue, a drop in the federal bucket. Even if they were to double the amount that they pay our deficit would only be cut by about one third (even if those increases did not trigger an economic slowdown).

So what exactly is this looming menace, and why is it so dangerous? Stripped of its rhetorically charged language the fiscal cliff is simply a legal trigger that will trim the deficit in 2013 by automatically implementing spending cuts and tax increases. In other words, the government will spend less, and more of what it does spend will be paid for with taxes rather than debt. Isn't this exactly what both parties, and the public, more or less want? The fiscal cliff means that the federal budget deficit will be immediately cut in half, shrinking to approximately $641 billion in 2013 from the approximately $1.1 trillion in 2012. What is so terrible about that? I would argue that there is a greater danger in avoiding the cliff than driving over it.

If you recall, the cliff was created by a deal last year when Congress couldn't find ways to trim the deficit in exchange for raising the debt ceiling. When they failed to reach an agreement, Congress knew they had to raise the debt ceiling anyway. The resulting Budget Control Act of 2011, signed in August of that year, offered the pretense that they were dealing with our long-term fiscal crisis and not simply raising the debt ceiling with no strings attached. This was done not only to appease some House Republicans, who had threatened to vote against a debt ceiling increase, but to satisfy the bond rating agencies that had threatened (I would choose a different word or provide a source to back this up) a down-grade if Congress failed to act.

Now the focus turns to how Congress will dismantle the structure it created just 16 months ago. There can be little doubt that they will as economists are assuring politicians that driving over the fiscal cliff will immediately bring on a recession. The expiration of the Bush era tax cuts for all taxpayers will cost Americans an estimated $423 billion in 2013 alone. Hundreds of billions of across the board spending cuts, including the military, have been delineated. No politician would allow that to happen.

It is amazing that members of Congress can keep a straight face as they claim to want to address our long-term deficit problem while simultaneously working to avoid any substantive action. No doubt an agreement will be reached that will replace the looming fiscal cliff with another one farther down the road (which they can easily dismantle before we actually reach the precipice). Will the rating agencies buy this bill of goods a second time? If we lack the political courage to go over this fiscal cliff, why should anyone think we will be able to stomach going over the next one? Especially since each time we delay going over the cliff, we simply increase its future size, making it that much harder to actually go over it.

Many currently believe last year's S&P downgrade resulted from the same congressional dysfunction that resulted in the fiscal cliff agreement. The truth is that the downgrade would probably have been much greater, and more rating agencies would have likely joined S&P in taking action, had it not been for the fiscal cliff agreement. If further downgrades fail to be issued when the lame duck Congress inevitably comes up with another can kicking deal, then the agencies themselves could lose any remaining credibility. In my opinion, the only explanation for inaction by the rating agencies would be for fear of regulatory retaliation by a vindictive U.S government.

I do not think it is a coincidence that while the banks are suffering a regulatory backlash as a result of their perceived culpability for the mortgage crisis, the credit rating agencies have been relatively untouched. But the credit agencies played a key role in catalyzing the mortgage crisis by giving questionable ratings to the mortgage backed securities. My guess is the government simply does not want to open up that can of worms as similar mistakes are being made with respect to the agencies' ratings of government debt.

The truth is that regardless of what you call it, going over the fiscal cliff is not the problem, it is part of the solution. Our leaders should construct a cliff that is actually large enough to restore fiscal balance before a real disaster occurs. That disaster will take the form of a dollar and/or sovereign debt crisis that will make this fiscal cliff look like an ant hill.
_
Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse. His latest book is The Real Crash: America's Coming Bankruptcy, How to Save Yourself and Your Country.





Latest Economy
- Neighborhood Bully - America Recklessly Throws its Weight Around
- Doug Casey on the Phil Donahue Show (1980/1981)
- Yellen: Where No Man Has Gone Before
- Block on CNBC: Privatize the Roads
- Burgeoning Regulations Threaten Our Humanity
- How Government Forces the Poor Into Black Markets
- "America Has Ceased to Exist": Investment Guru Doug Casey on the Coming Economic Meltdown
- The Bond Trap









Comments Add Comment Page 1 of 1
Anonymous

Posted: Nov 13 2012, 3:15 PM

Link
27252 The quicker the United States goes broke, The quicker the rest of the world will know exactly where it stands. I say to the U.S., spend, spend, spend and sink already will you.


Add Comment
Name
Comment

* No HTML


Verification *
Please Enter the Verification Code Seen Below
 


PLEASE NOTE
Please see our About Page, our Disclaimer, and our Comments Policy.


FAIR USE NOTICE
This site contains copyrighted material the use of which in some cases has not been specifically authorized by the copyright owner. Such material is made available for the purposes of news reporting, education, research, comment, and criticism, which constitutes a 'fair use' of such copyrighted material in accordance with Title 17 U.S.C. Section 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. It is our policy to respond to notices of alleged infringement that comply with the DMCA and other applicable intellectual property laws. It is our policy to remove material from public view that we believe in good faith to be copyrighted material that has been illegally copied and distributed by any of our members or users.

About Us - Disclaimer - Privacy Policy



Advanced Search
Username:

Password:

Remember Me
Forgot Password?
Register

The Rapist Doctrine vs. the Tom Joad Test - 08/20City Of Peoria Claims No Rights Were Violated When Police And Mayor Shut Down Parody Twitter Account - 08/20MSNBC Host: Maybe Cops Need Military Gear to Deal With "Anti-Government" Groups - 08/20Furious About Ferguson? Work to Free Shaneen Allen - 08/20Video: Sadistic Cop Repeatedly Uses Stun Gun on Unresponsive Handcuffed Man - 08/19Ferguson Cop Tells Protester "Go F*ck Yourself" & Threatens To Kill Him - 08/20County Officials Refuse To Pay Medical Bills For Toddler Burned by SWAT Grenade - 08/19If You're Ever Charged With A Crime, Don't be Your Own Worst Enemy - 08/18

Rialto, CA Police Made to Wear Cameras, Use of Force Drops by Over Two-ThirdsCop Who Karate Chopped NY Judge In Throat Gets Off Scot-FreeFlorida Cop Smashes Compliant Woman's Face Into Car -- "Maybe Now You Can Understand Simple Instructions"VIDEO: Lapel Cam Reveals A Day In The Life Of A U.S. Police Officer (Tasing, Beating, Breaking & Entering, Stomping On Heads... and Laughing About It)Caught On Tape: Officer Sucker Punches Inmate In Face, Files Report Claiming 'Self Defense'Insult Person On Twitter, Go To JailSWAT Team Brings TV Crew To Film Raid Against Threatening Internet Critic -- Raids Innocent Grandma InsteadCop Karate Chops NY Judge In The Throat
(more)

 
Top