The Fiscal Cliff (FC)

What is the fiscal cliff (FC)?

Well, let’s start with the Hollywood media’s definition as provided to them by their government counterpart - CBO.  On May 22, 2012, the CBO (congressional budget office) issued a report http://www.cbo.gov/sites/default/files/cbofiles/attachments/05-22-FiscalRestraint_ScreenFriendly.pdf addressing the “fiscal restraints” built into current law that would take effect in 2013. To wit:

• Additional tax revenues on 2013 compared with 2012 are $400 billion, mostly coming from tax provisions expiring 12/31/2012 and about $100 billion from reimposing the full payroll tax which was temporarily abated, and
• Spending cuts are about $100 billion out of a federal spending budget of around $3.5 trillion.  So the spending cuts approximate a reduction rate of a 3%.  Holy smokes, let’s not get too carried away here.
• A variety of other changes that add up to about $60 billion
• Total - $560 billion

That’s the FC as defined by those who now define things.  At TheFundamentals we call “fiscal restraints” what they are – living within one’s means.  It is all the things that everyone said we needed to do anywhere from one to three years ago but that we would temporarily postpone because the economy was crappy.  We agreed to defer these things so that we could have huge deficits and borrowings to fix things but we all agreed to get back on track beginning 1/1/2013 (giggle - giggle.)

So, it’s no cliff, it’s just following through with what we agreed to do.  The only problem with this FC is that it has the order of priorities reversed - it should be mostly spending cuts and the reinstatement of the payroll tax and more taxes on loudmouths like Buffett and the Hollywood set.  But let's get to the heart of the matter - the chicken littles are saying the FC will cause a recession.  Will it?

Will these so-called restraints cause a recession or any one of the other terrible consequences coming from the mouths of our glorious leaders?  Of course not.  We are in a recession.  GDP, notwithstanding the lies from elected and hired politicians and bureaucrats, is not up.  It’s down.  The only thing propping it up is deficits financed by our national bank – aka “the fed.”  Well, it is also being propped up by the ongoing diminution of the savings of America’s middle class.  When you look at your bank statement or your investment statement, hoping that it has not declined (think about that – you no longer seek growth or positive increases, you just don’t want it to go down more than you can bear to observe at any one time and this is what our president calls progress) you are experiencing first hand your contribution to our declining economic situation.

If we adjust GDP for the devaluation of the dollar and the deficits and borrowings, known and estimates of the unknown portion, and the decline in your savings and investment accounts, we are in a recession – big time.

And darn it all, all those stimulus things and fancy big spending programs and wars and extended unemployment benefits and huge federal government payrolls with all their benefits and pensions and other goodies (think of all those valuable public servants flying all over, first class, if they are middle managers – private jets if they are higher ups (no pun intended) are not keeping us on a growth spree. 

Huh?  That’s not right.  Why could that be?  Obama, Krugman, Geithner (whatever happened to him?), Bernanke, Nancy, Harry even Barney (ditto?) said just do what we say and things will get better.

Shucks and golly gosh.  T’aint working.  What to do next?

Here is our take - a body, falling off a high cliff can attain a maximum drop speed of about 122 mph.  Physicists call that “terminal velocity (TV).  Don’t confuse this TV with the one many Obama voter’s space out on for 8 – 10 hours per day.  Now, a body falling off a high cliff will reach about 50% of TV in 3 seconds.  We can safely suggest that the American economy has reached 50% of TV.  In the next 5 seconds it will attain 90% of TV.  And in the next 7 seconds, 15 seconds in total, it will be at 99% of TV.

We, at TheFundamentals, estimate that the acceleration goose coming from the Hollywood media’s so-called FC will not materially change anything in terms of our collective TV attainment.  We have one hope, well, really two –

1.    Spiderman can swoop down and grab us from that point where TV and TF (terra firma) meet --

2.    Or, Superman can do the same --

All Hollywood has to do it make it come true.  The actors are in place.  The script has been written – we all heard it four years ago.  And now we are hearing it again.  Let’s just call it Hope and Audacity, the Sequel.

Can’t wait to see this one.  But we do wonder, "Who will they blame in the trilogy?"