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Sunday, March 3, 2013

Do I have the answer to the fiscal cliff thing? Yes and No.

 http://www.newyorker.com/online/blogs/johncassidy/2013/02/us-fiscal-policy-is-upside-down.html 


The fiscal cliff. It was on everyone's mind a couple of months ago. From all accounts it has been avoided. By some accounts it has been delayed. In any event, the hysteria has died down and the country still seems to be running. But the debt mounts and is still growing. You can be sure that fiscal cliff is going to be approached again in the next year or two. Another recession is likely and that would only make it more likely that this subject comes up again. In any event, I think we should look at why we are at the cliff. 

Do I have the answer to the fiscal cliff thing? Nope I don't. But I do know something. 
There are lots of reasons why Western countries now carry very high, unsustainable debt levels. We could even debate how it happened. 

Was it the big multinationals milking the system and leaving the common man holding the bag?

Maybe, but I doubt that is the main reason. Part of it, yes. That has been going on since the world became industrialized and the debt problem is a relatively new phenomenon on the scale it is these days. I would venture to say that if we fixed the way big companies do business and abuse the system we still wouldn't solve the fiscal crisis problem. It goes much deeper than that.

Was it the sense of entitlement that most of us have to have things even when we cannot afford them? 

Yes, that is a big part of it, but again not all of it.


Was it the gradual eroding of the way of life, the loss of jobs to those who are willing to work much harder for less and be okay with that? 

That is a huge part. But even if that had not happened, the problem would still exist.


Was it the ignorance of the law of the jungle, where we support the weak with money we don't have?

 No, that has little to do with it, even though that does and will continue to happen.


Was it the overpaying for substandard work because the unions have too much power? 

Partly. But even when that used to happen, the debt was not that big of a problem. 

When you boil it all down,  it was simple ignorance of the realities of life that most of us live with in our day to day lives but don't expect those we vote for (hire) to do on our behalf.

In the simplest terms, it boils down to living beyond your means...as a country. When you do that,  the bill collectors will come calling at some point. We can debate why the situation was created that people (the country as a whole) was living beyond their means, but there is no dispute that they were.

When you run your credit card up over the max, and nobody will lend you any more money (and even if they would, they should not) you have to start paying back that debt. In your house, your home, the real one you live in, that means somebody has to pay that bill.

 In most cases, that means when you reach the max. In real terms, that would be when the country was at approximately 4 or 5 trillion over the even mark. Not at 16 trillion, and certainly not when they are at over 20 trillion when you consider the States debt added on top of that. Just because the country offloaded a lot of debt to the States doesn't mean that the total debt is any less that it is. If this was the real world, the banks and credit card companies would have taken our houses, cars and other possessions long ago.

In real terms, that means taxes will have to go up. A lot. For a long time. Ignoring this deficit for as long as Western countries have been has put them in this position.
Therefore, everybody is going to have to pay more, for a very long time. That is the certain part of it. Any politician that tells you otherwise is lying. No matter who or what you are, you are going to pay a lot more, for a long time, and get back a lot less. That is known as interest payments in the real world. And like most of the real world, that means that it will be very tough to get out of the hole. Instead of taxes paying for hospitals, wars, old age pensioners and schooling, it will be going to pay for debt service. That is what happens when you live beyond your means for too long.


Cutting spending is the answer for when you get back even, so you don't get back in the hole. You only spend what you have, not what you want to have. And spending cuts will help you get there faster, but the first issue is to pay back the money you didn't have in the first place. That means tax.
If and when we ever get back even, then we can examine why ends don't seem to meet in society these days. It could be the big corps, it could be the unions, it could be the lost jobs. It could be any number of reasons, or combination of reasons, or it could just be that people don't want to accept that they have to live within their means...as a country. But if they don't, they will be right back where they are now, just as most debtors who don't learn their lesson end up back in debt at the first chance they get. 
That much, I do know. The answer is common sense. Just like most parents used to tell you when you were growing up. Don't spend what you don't have and don't live beyond your means. 

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