So there is this fiscal cliff coming up. You know the one that happens on midnight of 31 December of this year when the payroll tax cuts, some tax breaks, a shift in the AMT, the end of the tax rates of 2001-2003 all end or go higher and the taxes for Obamacare start to hit. At the same time the spending cuts as part of the 2011 debt ceiling would go into effect slashing over a thousand government programs automatically. This would be bad for the economy for sure as it would definitely hinder growth over both the short and long-term, but even the partisan hacks in D.C. might be able to come up with some kind of compromise that holds it off for another year or so, but it doesn’t matter in the slightest. My friends at Zero Hedge posted an article showing the math of a deep fiscal abyss we’re driving off into and which there is only one way out of.
The federal government only really has three kinds of spending: Discretionary spending (i.e. the military, government agencies, the things we think of as government), Mandatory spending (Medicare, Social Security, medicaid), and the interest on our debt. Mandatory spending and debt interest are paid automatically, there is not way to stop it, Congress doesn’t even have control over it in the budget because it is going out the door whether they want it to or not.
The CBO predicted that government revenue would be exceeded by mandatory spending and interest expense by 2025. It happened in 2011. Our tax revenue for that year was $2.303 trillion. We spent $2.479 trillion in mandatory spending and interest debt. Ouch.
We have already increased that debt again this year by 43%. Raising taxes won’t help because of the small amount of GDP they produce and you have roughly ten thousand people a day reaching the age where they receive these mandatory entitlements (2 trillion dollars a year and growing). It was pointed out you could completely end discretionary spending, no more military, SEC, FBI, CIA, NSA, EPS, DOE, IRS, TSA, nothing – and the U.S. would still be in the hole nearly a quarter of a trillion dollars each year.
The only, and I mean only way to do anything about this is to make cuts to entitlement programs. That means drastic reforms to the big three, Social Security, Medicare, and Medicaid. Unfortunately, these are the sacred cows of the governmental left. They will be protected by the dems at all costs. Republicans are no better, for they know that even hinting making cuts would keep them from being re-elected. But neither side will listen to any logic, nor will they consider we are spending ourselves into such a financial hole that somewhere, sometime, someone who buys our debt or someone who extends us credit is going to realize we are never going to pay it back, or be able to pay it back.
This will result in the further downgrade of our credit rating, our notes will get called it, or countries will refuse to buy our debt anymore and the fiat currency we’ve rested our country on will collapse as people lose faith in its “worth” overnight. Inflation and economic collapse follow soon after. Fiscal cliff my foot, that might as well be a speed bump in the road to our own doom.