The U.S. Careens Over the Fiscal Cliff, Reaching Only Half of a Deal

New submitter Jetra wrote with word that the House of Representatives failed to vote on the "fiscal cliff" deal before midnight, technically sending the U.S. over the fiscal cliff. The White House and Senate, however, reached an agreement at the last minute to allow for some tax increases, and a House vote approving it is expected in the next day or two: "The agreement came together after negotiators cleared two final hurdles involving the estate tax and automatic spending cuts set to hit the Pentagon and other federal agencies later this week. Republicans gave ground on the spending cuts, known as the sequester, by agreeing to a two-month delay paid for in part with fresh tax revenue, a condition they had resisted. White House officials yielded to GOP wishes on how to handle estate taxes, aides said." The battle over required spending cuts has predictably been delayed for another day, making the deal far from complete.

Comments

First Time

[Jetra]

I need to learn to submit good submissions.

Re:First Time

[Anonymous Coward]

IF you assume that the economy will almost always increase year over year by at least X%, with exceptions within certain thresholds, AND the current debt to economy size ratio has not gone too high, THEN a balanced budget is suboptimal compared to a continuous deficit, since you can continuously increase your borrowings every year for an infinite amount of time while keeping the debt as a percent of the budget constant, thus increasing the cash available for every year in perpetuity.

Re:First Time

[Mindcontrolled]

Pretty much so. You only mentioned half the cause of the European boondoggle, though. The other half stems from the fact that hugely disparate economies have been bound together, come hell or high water, by the Euro, which must not be devalued at any cost. Even if you have to destroy the village to save it. Without the Euro, Greece, Spain, Portugal, Italy all would by now simply have devalued their currencies and adjusted their debt and would just go on, as they have done countless times before. The whole "OMG DEBT DEBT AUSTERITY!!!" crowd just exacerbates the problem.

Re:First Time

[TFAFalcon]

But saving that money may stunt the growth of your economy, or even drive it into a recession. Let's say the government stops spending so much on defense. That may cause a few companies to lose their only customer, pushing them into bankruptcy. Those companies had workers, which are now out of a job. The local supermarket now has customers with no cash, so it has to scale down operations, laying off even more people. This chain reaction can cause the economy to shrink by a lot more then the government spending cuts, especially if the cuts are fast - the companies don't have the time to adapt and find new customers.

The end result could be that decreasing spending leads to increased debt (through lower tax revenue).

Re:First Time

[Runaway1956]

You're confused as hell, Bubba. Google for "gold standard". Theoretically, a nation on a gold standard has gold in a vault somewhere that is equal in value to all the currency it has in circulation.

A standard, whether it be gold, silver, titanium, of even wheat, bases your money on SOMETHING.

Of course, that's not the end-all and be-all in national currencies. A fiat money has it's downsides, and upsides. But - fiat money SHOULD BELONG TO THE GOVERNMENT. In such a case, no interest is paid to private banking, as we see today in almost all nations.

If we weren't paying private banking for the privilege of using their fiat money, the government wouldn't be in debt.

No one wins with our current system, EXCEPT THE BANKERS.

Oil reserves? A consumable commodity? We might as well use wheat, that I mentioned above. Land? When the "owner" comes to collect, he can't just pick up a parcel of land, and carry it home, now can he? Labor? We're going to offer slaves to our creditors? Our manufacturing base is being eroded every year, and not being replaced, but how in hell do we use that as capital to pay off creditors? Pack up a plant or six, and carry the machinery home?

A gold standard has it's own strengths, one of which, you can remove some from your pocket, or your vault, and give it to a creditor, who can carry it home with him. Standards. Today, we have none.

Re:First Time

[Cederic]

If that fiat money belonged to the government, and not to the banks, we could go about playing the same sort of banking games that the Federal Reserve does today, without paying the Federal Reserve for doing it.

You do realise that any profit it makes goes to the US Treasury anyway. Hardly ripping off the government.

Note that's not the only central bank model. The Bank of England is an independent institution, but it's wholly owned by the British treasury.

The all-important "faith" in the dollar is not faith in our government, but faith in the ability of the central bank to back those bills up with something. And, they have nothing.

The central bank wouldn't have gold either. It can't afford it.

The fed acts on behalf of the government, with a degree of autonomy deemed necessary across the world. Faith in the dollar is indeed faith in the US, including its government.

And I still can't see how gold is worth more than a US Dollar. If China decided it didn't want US gold then a gold standard based dollar would be worthless in China. If China wanted US goods and services then it can pay in US dollars whether there's a gold standard or not.

Worse? The Federal Reserve engages in fractional lending to it's member banks, then the member banks engage in fractional lending. The Fed lends ten million dollars for every million it prints, then each member bank lends ten more million for every million that they receive.

Oh dear. This may take a while.
Central banks do not engage in fractional lending. The federal reserve may increase the money supply, but it's also beholden to provide any money it adds to the economy.
The Fed may lend ten million dollars for every million it prints, but physical currency isn't the entire money supply. A central bank can for instance increase the amount of money in existence by buying bonds on the market. It doesn't have to hand over a suitcase full of cash to do this, it merely alters the central balance of the financial institution holding the funds for whoever sold the bonds.
Other banks do engage in fractional reserve banking, but you haven't explained why this is a bad thing. Do please share, and also offer viable alternatives that provide the same capabilities. I'm not sure I want to revert back to bartering for donkeys.

Actually, just tell me how a bank works if it doesn't engage in fractional reserve banking. A bank is an intermediary between someone that has money, and someone that needs money. If I start a bank and put $100 of my own money into it, the bank can't lend you $100 if it has to keep in its vaults all $100 of my money. That's not a bank, that's a vault.

If I put in $100 and the bank lends you $200, it hasn't magically made $200 come from nowhere. It's loaned you $80 of my money and $120 of someone else's money that it's had to borrow.

Tell me that isn't a pyramid scheme.

That isn't a pyramid scheme. A pyramid scheme forces late joiners to lose out, as their equity is distributed among earlier joiners. Central banking and fractional reserve banking are nothing like that. If I put $100 into a bank, I can get $100 back out.

The dollar has no value. Gold has value. Oil has value. Oil and gold are stable, the dollar is not. Collecting dollars is a fool's mission, but we're all forced to do it.

I'm not sure how the relative values of gold and oil matter, and I don't think gold prices are stable at all, given the annual fluctuations in price of up to 180%. That's more volatile than the US dollar.

(btw, comparing figures for 75 years to figures for 5 years is fairly pointless)

But, back to my point. If gold has value, what do you buy it with? Collecting gold is a fool's mission, it's fucking hard to store and piss easy to steal. Gold has no inherent value. Gold is merely a fucking metal.

I still don't understand what's so fucking special

Re:First Time

[hibiki_r]

What? Spain was running a surplus during the good years. Then the real estate crisis happened, which sent tax receipts tumbling down and unemployment way up. A very bad thing for a country that has its own currency, but deadly to one that doesn't.

The Euro without a fiscal union doesn't make any sense, and no austerity will solve this.

Re:First Time

[Anonymous Coward]

One, a gold standard is infeasible to keep accurate. You have reserve notes that disappear from circulation, and there's no way to know if it's stuffed in a mattress, destroyed in a fire, lost down a sewer, etc. You either accept the loss (which in means the usable notes increase in value since some amount of your 'gold' is taken out of circulation) or you estimate those loses and issue new notes which might be overestimated, decreasing the value since some of that 'gold' is overbooked. At the scale of the American economy today, a gold standard as a theory is pretty well nonsense, there is no way an accurate 1:1 mapping between currency and backing standard can be maintained.

Gold is just yet another abitrary 'thing'. Look at the CPI versus the price of gold. Sure, the CPI has shown some change indicative of the fluctuating value of a dollar, but Gold has been far more volatile than *anything* else. Being that disconnected from CPI shows that Gold is as subject to crazy human nature as anything else. Gold has bubbles and has had crashes, and there's little regulatory agencies could do to manage it. If our fates were tied to gold, then a scenario like the value crash of the early 70s would be great-depression time rather than little more than a large inconvenience to a number of investors.

Re:First Time

[Above]

The Tea Party means well, but I don't think any of the things listed start to solve the problem. They are an attempt to return to an earlier time that does not match the modern world. They might as well add to their plan banning the automobile and returning to the horse and buggy since it would end our dependance on oil. We don't live in a world where pushing entitlements like Social Security to the states makes any sense. Grow up and work in New York, and retire to Florida and all the sudden you get different benefits? No way, no how. Doesn't work for those administering such programs, or receiving the benefits.

The real problems here are much simpler, and sadly the Tea Party is part of the problem. The number 1 problem is gerrymandered districts, particularly in the house. When representatives don't have to fear electoral challenges they are free to be beholden to the corporations. Many of the Tea Party folks were only able to get elected because of these gerrymandered districts, otherwise they would have had no chance. The number 2 problem is career politicians. If you're looking to a 30, 40, or 50 year career there will be many elections, costing a lot of money. Fundraising is hard, and takes a lot of time. The siren song of corporate dollars is too hard to pass up. There is no way to ever get the money out of politics, but with term limits it is possible to prevent long term corrupting relationships from setting in. Two terms and out works for the president, it should be the standard for the house and senate as well.

Re:And this too shall pass away.

[Trepidity]

The U.S. already has rather low government spending by first-world standards, though. Including lower than some countries who are outperforming us (e.g. Germany still has a successful manufacturing sector, and a positive trade balance).

Re:Fuck the US

[arth1]

What country do you live in and how much US foreign aid does it receive?

The myth about USA being so generous needs to stop.

Foreign aid pro capita, 2002 (latest available figures for all the richest countries):
Norway: $1.02
Sweden: $0.61
France: $0.25
United Kingdom: $0.23
Germany: $0.18
USA: $0.13

But Americans give a lot in private, non-government aid, is a usual response. Well, the same year, the average Norwegian gave a quarter, and the average American gave a nickel. Impressive.

Never mind that what USA gives in "foreign aid" quite often is at odds with what other countries consider aid. In 2009, the US gave $2.3 billion in foreign military aid to Israel, by far the biggest post except for Afghanistan and Iraq.

Re:Fuck the US

[will_die]

Foreign aid is not an indication of generosity, the numbers you are using are bad for bunch of reasons they don't include things such as personal gift and spending coming for specific projects that the people who did those numbers did not like
If you want a better and newer numbers look here and other locations.

Re:And this too shall pass away.

[fnj]

Reality check. The Republican House passed legislation that automatically imposes extremely heavy cuts on defense spending as well as social spending. That is exactly what the cliff is about. And we fell off the cliff 3 hours and 42 minutes ago.

The "Raise Taxes" Myth

[BlueStrat]

If you raised taxes to 100% for everyone making $68K/yr and up, it would fund the US Federal Government for approximately NINE DAYS!

The top 10% pays over 70% of total federal income taxes. The top 1% pays 40% of total federal income taxes.

Here's a good piece using the government's data and has a nice chart.

http://seekingalpha.com/article/1044651-tax-share-by-bracket-an-update

Let's talk "fairness:" The top 10% of income earners in this country already pay over 70% of federal income taxes, and the top 1% (the rich) already pay almost 40%. Is that not enough? Almost half of those who work pay no federal income taxes. Is that fair? Is it healthy for so few to pay so much, and for so many to pay nothing? When almost half the population has no skin in the game, and another quarter pay only a very small share of total taxes, it is easy to demonize or exploit the richâ"it's called the "tyranny of the majority."

And, do you think the rich will just wait around to have their wealth confiscated? Ask the French actor Gerard Depardieu. When the rich move their wealth and themselves out of reach, who do you think the government will come after for their tax-money "fix"?

Strat

Re:Fiscal Cliff?

[deimtee]

Careen over the fiscal cliff?

That word doesn't mean what you think it means. Unless you mean the US was run up on a beach for the fouling to be removed from its hull. Perhaps you meant (or the Editor meant) career?

It is also used to mean tilt or lean while in motion.
Your definition does seem oddly appropriate though.

Re:Please grow some gray matter

[Todd Knarr]

That's an odd position to take given the actual budget numbers. I collected some of them here. What's odd is that every Republican President since 1976 has presided over a larger year-to-year increase in both the debt and the deficit than the worst Democratic President (Carter). And you can't blame it on a Democratic Congress: the majority of of Clinton's term saw a Republican Congress, as did the majority of Bush Jr.'s terms, yet Clinton's terms saw net reductions in the deficit and rate of growth of the debt while Bush Jr. oversaw net increases in both. And Obama has had a Democratic Senate since he was elected and a Democrat-controlled House for half his term, yet again net reductions in the deficit and rate of growth of the debt. The numbers... appear to add up to exactly the opposite of your position.

Re:And this too shall pass away.

[TFAFalcon]

Sure the Republicans are willing to slash government programs, but only those that benefit the majority. They are completely unwilling to slash things like defense, which is just like a black hole- the more you spend the more it will want to just maintain it's arsenal.
And since the Republicans are unwilling to raise taxes for anyone - even people that are exploiting the loopholes you mentioned, the debt will continue to go up.
Now the Democrats aren't much better on the spending front - cutting a bit of everything, but not enough to balance the budget on it's own. However they do want to raise revenues by not extending some of the tax cuts on the rich, so they may eventually get to the point of having a balanced budget (perhaps even before the heat death of the universe).

Belief and value

[sjbe]

A standard, whether it be gold, silver, titanium, of even wheat, bases your money on SOMETHING.

Except that it does not. The only thing that give currency value is the belief that it has value. You can base the currency on the value of something else but then guess what? Gold only has value because people believe it has value. So you are not changing ANYTHING but you are making it more difficult to deal with economic problems when they arise. You are pegging the value of one commodity (currency) to another (gold). This means that you have to transfer a bulky physical commodity to adjust your money supply which is a HUGE problem. (and no, keeping your money supply fixed is not actually a good idea especially during a recession)

If we weren't paying private banking for the privilege of using their fiat money, the government wouldn't be in debt.

Bankers are no different from you or me. I would not loan the government money for free and neither would you. You don't take a risk without some change of a commensurate return. Bankers simply facilitate doing the same thing you or I would do. No difference whatsoever except the bankers can do it more efficiently that you or me.

A gold standard has it's own strengths, one of which, you can remove some from your pocket, or your vault, and give it to a creditor, who can carry it home with him.

I can do the same thing with a dollar bill. No difference whatsoever.