Posts Tagged ‘fiscal cliff’

Boehner to Obama: take us over the cliff of no return

December 21, 2012

The break-down of bargaining between Barack Obama and John Boehner was predictable from the outset. Unfortunately, no one, however smart,  who has to carry his GOP majority in the House, can bargain with a low-IQ  President who believes that a fractional popular-vote majority has provided him with dictatorial powers.

The President can threaten John Boehner with:  ‘Your money or your life’. He cannot credibly threaten the GOP majority in the People’s chamber. So both parties come up empty-handed. Ultimately this outcome may be good news for the Republic.

The time has come for almost all Americans to confront their own individual responsibilities for the debt crisis. Let me be blunt. Almost all Americans –  except the truly wealthy –  have taken more out of the Federal Treasury that they have put back in. That is how huge debts pile up. Like all profligates, the time comes when they have to reverse course or face the harshness of the debtors’ prison. Atlas, finally, has shrugged.

The so-called fiscal cliff is no accident of fate. It was legislated by both houses of Congress and signed into law by the current President. It is the law of the land in the absence of any new legislation. So welcome it with open arms as a first down-payment on profligacy. Surely do not allow any reversal to occur after January 1, 2013, unless it adds further down-payments in the form of aggressive public spending cuts.

The President has lifted his bayonet and scrambled over the top. No one will follow him. There is no sense in providing a fool with protective cover.  Soon enough, I am quite sure, that particular President will be rushing back into his own trenches, once he comprehends the devastated second term that lies ahead of such arrogant stupidity.


Free bread and circuses are destroying the United States republic

December 17, 2012

The Roman Empire famously destroyed itself from within by cultivating the support of its citizens by showering them with  free bread and indulging them with diversionary circuses. Little did the population realize that each time that the Emperor raised his thumb (yes, popular legend has the direction wrong) to signal that a losing barbarian should be killed, that  same weak ruler was killing the Empire  itself.

For too long,  emperors, patricians and consuls of the United States have pursued similar profligacy in order to attract the popular vote. With 41 million Americans now on food stamps, and with a flagrantly wasteful Inaugural spectacle about to swamp the nation’s capital, think Rome at the end of the sixth century A.D.  Think Rome  during the rule of the Emperor Romulus Augustulus, the last Emperor of the Western Roman Empire ever to wear the imperial purple.

In 2013, the United States government is scheduled to run a deficit in excess of $1 trillion. This does not constitute news because the United States has run deficits similar in magnitude throughout the first term of its own Romulus Augustulus.  Indeed the ‘Praetorian Guard’  has confirmed Romulus Augustulus in his position on the basis of the indulgences that he has  already extended.

Now, the nascent opposition has an opportunity to strike back. And it surely must do so if the barbarians are to be held outside the gates.  Fiscal measures signed into law by the hand of the Emperor are scheduled to take effect at the end of 2012.  Crude though they are, they constitute a first offering towards closing the relentless line of huge deficits that track the future of a doomed republic.

The fiscal cliff has been built up by the media as a disaster for the United States. Sadly, it is a parsimonious first offering. If the GOP allows the law to take effect, only $160 billion will be clawed back from that $1 trillion plus annual deficit. On that basis it will take five years just to expunge the 2009 stimulus package.  If Romulus Augustulus has his way, the savings will fall perhaps only to $40 billion per annum.  In twenty years time, the 2009 stimulus package would barely be retrieved.

Take it as the best that you will obtain, GOP. At least the  past beneficiaries of free bread and circuses will bear their own (fair) share of the debt reduction that is achieved.

GOP should embrace the fiscal cliff

December 8, 2012

If no legislation intervenes before January 1 2013, all George W. Bush tax cuts will expire and a pre-determined set of sequestrations will automatically cut federal outlays. That is the law of the land. It is the only reality out there at this time.

For that reality to change new legislation is necessary. This requires a Bill common to both Houses of Congress signed into law by President Obama. Anything short of this will have all the impact of a fart on the wind.

At this time, the United States confronts a national debt problem unprecedented since the end of World War II.  To relieve pressure, tax revenues must increase – arguably from 15.5 per cent of gross domestic product to 20 per cent of gross domestic product – and expenditures must fall – arguably from 25 per cent of gross domestic product to 19 per cent of gross domestic product. Only when such a surplus is achieved will the debt itself decline in absolute terms.

The $64,000 question, therefore, is whether President Obama recognizes this reality and is willing to work in good faith to address it. And the answer is a Corleone Godfather-like No!

Barack Obama has never shown any interest in restoring the United States economy to budget balance. All his actions taken while in office have accentuated the size of the debt and have increased federal expenditures. Barack Obama judged by his actions – as any politician must be – is a progressive socialist. His concern is to expand the relative size of the public sector while redistributing wealth from the more to the less productive members of society. All his actions support this hypothesis.

So, if the GOP bargains to avert the fiscal cliff, they will end up with tax increases imposed on the better off and with new ‘stimulus’ outlays designed further to socialize the economy. That is a bad deal for the GOP and a bad deal for the nation.

So, why not do as well as one can while doing as much good as one can in an uphill political environment.  The wealthy will take  a hit whatever the outcome. But all Americans have created the debt problem.  By going over the fiscal cliff, almost all Americans will make a contribution to easing the problem they have collectively caused. Simultaneously, government expenditures will take a hit. And that is good, long-term, for the economy.

And then the GOP will be free to freeze all Presidential legislative initiatives, certainly until 2014 and, with a bit of electoral luck, until 2016.  And that is not at all what President Barack Obama has in mind for this second term. He wants to use the veto power to leverage socialism. When the veto power passes to the House of Representatives, he becomes the Emperor with no clothes.

It takes brains to bargain effectively

December 1, 2012

My principal concern about President Obama since his 2008 election victory is that he is unfortunately endowed with a low intellect. To put it bluntly he does not possess the  grey cells required for the position that he occupies. As so often happens, he has been promoted beyond the level of his abilities.

The evidence is there for anyone who takes the time to research for it.

A senior student editor of the Harvard Law Review who fails to publish an article in the Harvard Law Review during his period of tenure is either under-motivated or under-skilled. No one claims that Barack Obama is under-motivated.

A faculty member at the University of Chicago who fails to publish even one scholarly paper in ten years is either under-motivated or under-skilled. No one claims that Barack Obama is under-motivated.

A faculty member of at the University of Chicago who cannot converse with the conversationally brilliant Richard Epstein once in ten years in the faculty common-room quite frankly is completely out of his intellectual depth, as any one who has ever met Richard Epstein will know well.

A President who has not prepared a policy proposal on any issue over a four year spell in the White House is either lazy or under-skilled. Barack Obama claims to be hard-working. If we allow him the benefit of the doubt in that dimension, then the skill issue once again is on the table.  Every policy legislated into law over the period 2009-2012 was prepared by senior  Democrats in Congress.  Obama simply egged on his colleagues from the golf courses, basket-courts and the campaign trails of the nation.

So now, in December 2012, when the fiscal cliff threatens to abort a stuttering American economic recovery, what do we find?  Predictably, President Obama prefers to squeeze flesh in states marginal to the Electoral College, parroting half-baked policy utterances that won him election among a largely ignorant electorate.

You do not hold all the cards of power in your hands, Mr. President. The electorate, even in its ignorance, did not cede to you control over the House of Representatives. That body is the legislative engine of the nation, not the White House. To resolve a major fiscal crisis requires that you bargain intelligently with the Leader of that House.

By demanding $1.6 trillion through tax hikes now, in return for a promise to work in the future for $400 billion in expenditure cuts, you admirably demonstrate the low quality of your intellect. That is a tax and spend proposal in an environment where everyone but you understands that public expenditures are seriously out of control.

If you are not up to this job at this moment in time, why not take more time out on the golf course and allow an experienced Democrat with the necessary intellectual horse-power to take over the bargaining role . Bill Clinton, I am sure, would be happy to oblige.

And the nation would be immensely relieved to see a real President sit down with the Speaker of the House before Christmas 2012.!

When market forces bring down the American eagle

November 26, 2012

U.S. politics has been pre-occupied since November 6 with short-term fiscal problems. Will the fiscal cliff be avoided and if so, by what measures?  This is the seventh order of economic smalls.

The crucial issue – all but ignored by a people who have lost all interest in the long-term future of their nation – is what will happen if the United States continues down its current path to an unsustainable rise in the national debt.

At best, current fiscal cliff discussions will leave in place annual federal deficits of the order of $1 trillion. By 2016, the nation’s national debt will approach $20 trillion. Global markets will not tolerate levels of debt that so outreach the nation’s gross domestic product.

Just when the adverse market reactions will occur cannot be predicted. But when they do so, the U.S. economy will be crushed by an avalanche of unstoppable magnitude.

Once creditors determine that U.S. Treasury’s are no longer the safest form of investment available, demand for those Treasury’s will decline, interest rates will rise, and the cost of servicing the debt will explode.  Even a modest 1 per cent interest rate increase, for example,  would wipe out all the deficit reduction included in last year’s Budget Control Act.  In other words, all the pain envisaged in the fiscal cliff would provide no deficit relief at all.

In reality, if market forces move against U.S. Treasury’s they would not impose a 1 per cent cost. Interest rates would increase more likely to 5 or 6 per cent per annum on the initial tranche. Such penalties would require massive and immediate cuts to Social Security Medicare and National defense and most likely would take Medicaid right off the federal accounts. Even the Congressional Budget Office projects that, under the most likely scenario, in 30 years from now,  net interest payments on the U.S. national debt will amount to $3.8 trillion per annum in real 2012 dollars. That is more than total government spending in 2011.

“As Harvard economist Kenneth Rogoff recently explained, ‘By the time (markets) lose confidence, it’s too late: The option to tighten from a position of strength has evaporated.’ Senator Mike Lee, ‘After fiscal cliff comes fiscal avalanche’, The Washington Times, November 26, 2012

No one expects a seeming economics’ ignoramous like Barack Obama to be able contemplate such reality. A majority of the electorate, in its collective stupidity, chose economic incompetence over experienced success.  Now every American will have to live with the sad consequence of the economic avalanche that is sure to come.


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