Fiscal Cliff, Fiscal Muddle

Posted by Robert Morley at 3:00 pm on December 31, 2012
America’s recent fiscal cliff aversion is only a temporary Band-Aid in trimming our deficit and escaping our imminent financial woes.
 

Senator Mitch McConnell and Vice President Joe Biden reportedly said they are close to a deal to avert the so-called fiscal cliff. More Washington talk with little real problem solving. From Bloomberg:

Income tax cuts would be extended on families earning up to $450,000, [an official familiar with the talks] said, with rates rising to 39.6 percent on incomes above that.

Rates on estate taxes would rise to 40 percent, on amounts above $5 million. Extensions of business tax breaks would continue through the end of 2013. There would be a permanent fix to the alternative minimum tax threshold.

The Medicare payment rate for doctors would be extended through 2013.

The contours of the possible deal would generate $600 billion toward deficit reduction. The debate over how to postpone automatic federal spending cuts remains. Democrats propose postponing it for a year, while Republicans want to allow cuts to begin taking effect with the new year.

Democrats will get a little more tax revenue; Republicans will probably get small spending cuts.

The key point is that neither party will fix our deficit-spending problem. The supposed $600 billion that will be generated for deficit reduction is over 10 years! With a $1 trillion deficit, all America can trim is $60 billion per year? It is probably actually less than that because some of the cuts will likely be back loaded to future years.

With budgets like this, America will owe close to $20 trillion by the end of President Obama’s second term.

This budget fiasco shows that America’s financial problems cannot be solved. The Federal Reserve will have no choice but to resort to money printing. Be prepared for more dollar devaluation and other economic unpleasantness. Request a free copy of Solve Your Money Troubles! and put your finances in order before it is too late.

Additional Reading: