Fiscal Cliff and Fiscal Insanity
Details are emerging about the “fiscal cliff” deal passed by the Senate early this morning. It makes no sense.
The new bill to avert the “fiscal cliff” contains no net spending cuts, according to the Congressional Budget Office (cbo). That’s right: none, zip, nada.
All that talk about slashing spending and raising taxes to get our finances in order was apparently hallucinatory politician doublespeak. The cbo reports that the bill includes $25 billion in new cuts, of which $2 billion will take effect in 2013. But these cuts will be absolutely dwarfed by $330 billion in new proposed spending over the next decade!
America’s politicians are delusional if they think there won’t be economic consequences to this folly.
The world is locked in a recession. Serious economists like John Mauldin and Bill Gross warn that the economy will be lucky to grow at a 2 percent rate. We are spending $3.2 trillion per year, but are only collecting $2.2 trillion per year in taxes. America’s $16.3 trillion debt has surpassed 100 percent of its gross domestic product—a level that has triggered meltdowns in other nations. Foreigners are already refusing to lend us the difference, so the Federal Reserve is creating money out of thin air to cover the difference. And now our leaders in Washington plan on increasing our debt another $4 trillion over the next four years.
By the time President Obama leaves office, America’s debt will likely exceed $20 trillion, and our debt will hit a whopping 125 percent of gdp—if everything goes well.
There are also tens of trillions of dollars’ worth of Medicare and Medicaid promises politicians have made but have not set aside money for.
If that was the sum total of all the debt America had to contend with, it would be bad enough, but the nightmare is only starting. America still has all the debt accumulated by various state, local and municipal governments—debt that will take generations to pay off, if ever. There are also the massively underfunded state pensions—more promised money that only exists in politicians’ fairy tales. Don’t forget corporate debt, or the multitude of various personal debts, such as car loans, mortgages, student loans, credit cards and medical debt.
This new budget bill clearly illustrates that America is past the point of no return. It may seem insane, but politicians are still not ready to face reality—that means we should prepare for worse economic times ahead.
Read the article “Time to Buy Gold?” for advice on how best to prepare for a very tough 2013 and beyond.