psychpol

November 30, 2012

FISCAL CLIFF

Filed under: Psychology and Politics — psychpol @ 4:46 pm

For those of us that are paying attention, the big economic issue of today is the Fiscal Cliff. What is it and where do many of us stand with this, and other issues in our society that have led to this situation?

Fiscal Cliff is all over the news. Some TV outlets have countdown meters, for example, 31 days – 2 hours – 41 seconds until we go over this cliff.

The actual date is the end of this year.

Many Americans happily have no clue as to what this issue involves.

They are more concerned about who is winning American Idol, Brad and Angelina’s maybe wedding, some singer beating up whomever, Lady Gaga, Michelle’s jacket, the latest youtube sensation and other mind-numbing topics of interest to many.

Hey, fun is fun and that is good. Agreed. Dance, sing, celebrate…

Or they may simply be trying to survive economically on a daily basis.

It is a free country, although many would say that it takes an informed people to keep it free.  We are collectively failing in this area.

Others wish to be informed. Knowledge is power, they might say.

Or they embrace their civic obligation to be informed, even with limited time in their busy lives.

This is one citizen blogger’s effort to understand current economic issues and some of the underlying trends in our country.

There are two major thrusts for managing the economy: 

The first is the Federal Reserve system (The Fed). They manage MONETARY policy, under the leadership of Chairman Ben Bernanke.  There are Fed Presidents from several regions of the country.

They have two basic missions, regulating the general economic environment in terms of money supply, and managing the interest rate environment in terms of lending rates, bank to bank and bank to person. 

They review and compare  data such as employment levels, Gross Domestic Product, various regional indices of manufacturing, purchasing data, retail data, national productivity data, wage data, etc.

Economic indicators.

They have a number of tools for implementing monetary policy. Currently, they are on the third round of keeping interest rates at near zero.

The purpose is to encourage borrowing and resulting economic activity, for example, expanding businesses, starting new businesses, buying homes/cars/appliances, thereby creating  more jobs.

Most economic experts believe that the Fed is now essentially out of significant tools for stimulating the economy.

The second is FISCAL policy. This concerns government budgets, including spending plans and revenue predictions.

These are decisions made by politicians under the leadership of the President.

Two items of interest in understanding fiscal policy are debt and deficit.

DEBT means how much has the country borrowed to finance its spending? 

What do we now owe overall?

It is like your credit card borrowing. What are the rates of our borrowing, and from whom do we borrow?

How much do we owe? The big picture.

Currently, the debt is over $16 trillion dollars, with China holding over 50% of the loans. The rest is held by other banking systems that have loaned money to our government.

To date, they have been willing to make loans to us.

For perspective, the debt when Bush took office in 2000 was roughly $5 trillion dollars. After eight years in office, the debt was $9 trillion dollars.

Since George Washington and all the preceding presidents, debt was $9 trillion dollars total by the end of 2008.

Candidate Obama in 2008 called this “immoral” and a “burden on future generations.” He was of course correct.

President Obama has taken debt from $9 trillion dollars to over $16 trillion dollars in less than four years.

It is projected that debt will be at least $20 trillion dollars by the end of his second term.

That is, if anyone wants to keep lending us money. To get it, the government may have to pay higher rates.

For perspective, the average American family now owes over $250,000 in federal debt. A child born today is already $50,000 dollars in federal debt.

DEFICIT refers to how much the government spends beyond what it takes in each year? For the first time in history, the annual deficit is over $1 trillion dollars and climbing.

This mean the government regularly collects less than it spends.

One euphemistic term in the discussion these days is “revenues.”  It used to be called taxes.

So, government revenues are derived from taxation, loans or (another buzz word) “investment.”

Investment would mean something like the GM or AIG bailouts, whereby these companies would pay back their loans with interest.

We the people would therefore benefit from such a loan payback.

Although AIG has paid back what we loaned them, plus interest, in the case of GM, they still owe over $25 billion dollars and have asked us to forgive that debt.

So, as with the failed green energy loans where we lost all of our “investment” dollars, we would lose this GM payback as well.

The banks have repaid their TARP loans with interest. We made out on the deal.

When one understands that many of these “investments” have gone to political supporters of the President and the Democrats,  we see that it can be more of a political payoff with our hard-earned (or borrowed) money in exchange for votes.

Fiscally, there are three budgets that are supposed to be presented: by the House, the Senate and the President.

These determine annual spending and revenue projections. These numbers provide the foundation for the deficit, surplus or balanced budget for the coming year.

By way of background, in over a three-year period, the Democratically controlled Senate has refused to produce an annual budget.

They are constitutionally mandated to do so, but have ignored this.

In fact, the proposed Chairperson of the Budget Committee, Senator Patty Murray ( D- WA) recently stated that she could not guarantee a budget would be produced under her “leadership.”

Huh?

The Republican controlled House has presented budgets on an annual basis as required by law.

The President has brought three budgets to the House and Senate. All have been defeated, without receiving one single vote of support.

No Democrat has voted for Obama’s budgets. Why?

In theory, the House, Senate and President’s budgets should  be debated and a compromise reached.

That is how the system is supposed to work on behalf of the American people.

Simply put, DEBT is how much you owe in total in your life right now.

DEFICIT is how much you earn versus your spending on an annual basis.

Most of us must manage this issue on a regular basis in our lives.

So, the FISCAL CLIFF pertains to what the politicians are doing to address DEBT and DEFICIT with tools such as tax rates, spending levels and debt limits.

The latter refers to how far they can go in terms of borrowing more dollars.

Now, we are over the line and decisions must be made before we go off the cliff on 1/1/13.

Solving the cliff  is the current debate in Washington DC.

What shall we owe, what shall we spend, and who shall be taxed how much?

Obama and the Democrats proposed yesterday to increase taxes by $1.6 trillion dollars, to increase spending by $50 billion dollars, to eliminate any debt ceiling ( we want to borrow as much as we want…) and to reduce entitlement spending (Medicare and Social Security for our seniors) by $4 billion dollar.

They also proposed to postpone scheduled cuts in defense and social programs for one year.

As promised, Obama’s centerpiece is “tax the rich.” At his proposed rates, the “rich” would pay an extra $82 billion dollars, or enough to run the Federal government for 8 1/2 days.

It costs about $9.6 billion dollars a day to operate the Federal government.

He also proposed raising the capital gains tax and tax on dividends from 15% to 39 – 44%. So, if you earn dividends on an investment,  have a CD or an interest bearing checking account, and these are not tax protected, you will pay more taxes on your gains.

A central issue in the debate involves keeping or eliminating the ” Bush tax cuts”. Obama and Congress had agreed to keep these before the election.

Here, all people were given reduced tax rates in an effort to “allow us” to keep more of what we earned. It was thought that this would stimulate our economy and reduce unemployment.

For perspective, about 50% of all tax return filers pay no Federal income taxes. There are various reasons for this, some pertaining to deductions, taxable income levels and entitlements.

The top 1% of earners generate 18.5% of all money earned, and pay 37% of all Federal income taxes (IRS – 2010).

The Republicans say that they wish to keep tax rates low for everyone, and eliminate some of the deductions people use to reduce their tax burden.

This would be a “grow the economy and enhance tax revenue” strategy.

More people work, more people pay taxes, right?

The fewer deductions, the more taxes paid to the Federal government.

There are “negotiations” underway to resolve this problem. The president is not participating directly. He is out encouraging voters to send Tweets and other messages to their elected representatives, supporting his “plan”.

Many are not sure what his overall ideas might entail, with the exception of the few mentioned above.

 To not resolve the cliff it is likely to produce the second RECESSION since 2008.

What is a recession? This is when the American economy has two consecutive quarters (roughly 26 weeks) of negative GDP growth.

This means that the economy is shrinking in terms of  how many dollars it generates through goods and services that we produce.

So, if the economy is shrinking,  jobs will be lost. We have seen this fact historically.

If we go over the FISCAL CLIFF, several hundred thousand more jobs are likely to be lost.  A recession is likely according to most economic observers.

Simply put, if we tax people more at the upper end of the income level, it is predicted that the economy will shrink. They will spend less and employ fewer people, goes the theory.

But, there are even bigger questions before us, no?

Why shouldn’t we keep most of what we earn? All of us.

Why shouldn’t we demand a balanced budget of our “leaders”?

Where does our money go? Who is contributing and who is using the rest of us for a free ride?

What will facilitate more economic opportunity for as many people as possible?

Who has a record of success? Of failing the people?

Who are the leaders that have the solutions, and who are those who simply grab for more power at our expense?

Why are so many American uninformed and simply getting less able to think clearly regarding critical issues in their lives?

Politicians prey on our confusion and apathy. The media’s job is to keep us  confused and misinformed in too many cases.

You feel overloaded, you withdraw and become cynical about your power and your possibilities.

Why is anger and rage at fellow citizens now ruling many of our people, clouding their common sense understanding of these economic issues?

Some believe that Obama wishes to wreck the American economy to stimulate class warfare and more government control of our lives.

This would be in the classic socialist tradition as seen in other failed economies and countries.

Others believe the Republicans simply want to protect their rich friends and facilitate the gap between the “haves and the have-nots.” 

This was a foundational theme that worked in the “hate the rich” aspect of the recent presidential campaign.

So far, neither side has budged. The Republicans have offered ideas that combine preserving some tax cuts for the middle class, but cutting overall spending.

The Democratic proposal is noted above. No meaningful spending cuts, no debt reduction, no deficit reduction is the current bottom line.

Two years ago, President Obama appointed the Simpson (R) – Bowles(D) Commission, a bipartisan group of experts.

Their job was to study debt and deficit reduction. They produced a document with several dozen recommendations. Many were supported by both sides.

The President simply did not act on any of their ideas. Why?

More stalemate.

What happens to you and me if we spend way more than we make?

In Washington DC, the power game takes precedence over our lives. It keeps our fear and stress levels high.

We the people are inconsequential.

It appeals to emotionally driven political campaigns that stoke our frustration as citizens and divide us.

For some, frustration equals anger equals inability to think clearly.

In the moment, anger and blame feel good. But they don’t work as solutions to complex problems.

Such power games further alienate even more of us.  A huge number of our peers are poorly informed or have dropped out entirely.

Many are proud of being uninformed. Not good. Self-defeating solution.

So, the FISCAL CLIFF stands to wreak havoc on our weak economy.

It is infuriating how power has become the object of the game, rather than serving the needs of the people.

Yes, we will have our differences, left and right. But I bet we could find a compromise if we listened to one another and sought common ground.

In truth, the author finds economics difficult to understand and there are many opinions on what should be done with Debt and Deficit.

If we try to remember our daily lives, and how we must manage our finances, it helps to see through the smoke and mirrors put out by the politicos.

We must demand leadership that is responsive to the people, seeks compromise and celebrates moderation as it benefits us all.

We the people must come out of our numbed slumber and forgo our electronic distractions and the propaganda we are fed.

Collectively, we may be getting dumber and easier to manipulate.

We must reclaim our power, and seek governments that have positive solutions to our economic problems.

If  they do not, let’s unite and throw them out.

Let’s hope that we do not go over the FISCAL CLIFF so these clowns can continue their power game at our expense.

And while you are hoping, take action steps with your senators, congressperson and the president. 

Do more than Tweet. Threaten to vote them out. Or whomever they endorse as their successor.

This stuff will matter in your life and the lives of your loved ones, now and in the future.

What seems distant and “out there” will directly impact us. It will stress and anger us. It will inhibit our dreams as a people.

Let’s not allow them, whoever “they” may be, to push us around and dismiss us any longer. Their tactic of frightening the people should not be tolerated.

Common sense will tell us what can work for the good of our country…

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