Sunday, November 11, 2012


We are going to hear more about more about the fiscal cliff and how it will bring the country to its knees.  In reality the fiscal cliff should be a great opportunity for both parties to achieve a level of success and implement a long-term strategy for fiscal and economic success for our country.

Unfortunately our elected officials don't live in reality and the election results suggest to the President that raising taxes is the course the people have demanded.  On the other hand, Republicans, spurned by voters will hold fast their fidelity to the "producers" and attempt to keep taxes low for the highest income earners.

Truthfully, no outcome will really work as the politician's plans for 10 year deficit reduction and projections about reigning in spending are all simply made up accounting garbage.  The healthcare mandate alone will have cost overruns well beyond anything estimated and our other entitlements won't fare much better.  Despite this truth, our politicians aren't in the business of taking serious aim at real issues, they are in the business of dividing and wrangling for a small victory on a meaningless issue to be able to say to their special interest that they got something for them.

So why is this important?  As odd as this seems after writing the text above, I'm pretty convinced that the Dems and Repubs will do exactly what the Fed would do and do more of what got them in this mess in the first place.  Since we know that the Fed's response to all negative news and all empirical data that shows that what they've been doing hasn't helped is simply to do more of their devaluation and do it in bigger size, we can guess that Congress and the Senate will do exactly the same!

The solution is not to fix anything or change structurally any spending or tax course, it will be to simply defer entitlement cuts and agree to raise tax rates slightly.  The grand bargain will allow both sides to win and will damn our country to lose.  The country's loss won't matter though because both political sides will be able to crow to their supporters that they did what was best and achieved a great deal.

This non-solution course will buy time and isn't that what leadership is all about?  Look at the ECB as it deals with Greece.  Look at the Fed dealing with banking solvency.  Look at our President in dealing with Middle East issues.  The problems are so big that leaders simply work to defer the day of reckoning as often there is no other way to handle the massive problems.  As we know though, if you lie and put off recognition of issues they often become unmanageable and can't be handled in a fashion that limits damage.  After years of Presidents and Congressional leaders putting off the tough issues, we are about to see just how out of control they are.  The incredible $1 trillion deficit spending we've had over each of the last 4 years has only brought the issue to the top of the heap, these issues were there already, they just can't be put to the side like they have been so often before.


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