‘Fiscal Cliff’ … an Illusion or Reality?

Fiscal Cliff-

We do get these buzz phrases about the economy, don’t we? A special jargon of the financial press and the commentariat, shorthand expressions intended to suggest the speaker has an especially intimate understanding of economic events.

Note: See Optio Money’s Financial Jargon directory and Mortgage Jargon Directory for help with the Jargon.

Federal Reserve Chairman Ben Bernanke gave a little miracle-grow boost to the old expression “green shoots” on “60 Minutes” in 2009, as he described signs of a recovery. And once he dropped the phrase, Scott Pelley was right there to pick up on it.

“Do you see green shoots?” Pelley asked.

“I do. I do see green shoots,” allowed the chairman.

Fiscal CliffBernanke must have been seeing things. That was over three years ago, but Depression-era levels of unemployment persist, the latest numbers reveal that 46.5 million Americans are on food stamps (up from 28 million at the start of the recession), and “60 Minutes” recently re-ran a story about all the schoolchildren who are living in cars with their families and brushing their teeth in the gas station at night before they go to sleep in the parking lot.

It Isn’t the First Time
Bernanke has Suffered Illusions!

In early 2007, just when the mortgage meltdown was getting going, he said the subprime market appeared to be “contained.”

Even more overused than “green shoots” is the expression “headwinds.” It is way past its trendy lifespan. But President Obama, seeking to lower expectations for the economy before the election, recently announced that “We’re going to have some continued headwinds over the next several months.”

These nature metaphors for the economy spread like, well, wildfire. The latest, unavoidable in the financial world, is “fiscal cliff.”

But This Is NO Illusion!

The fiscal cliff is the expiration of the Bush tax cuts at year-end, just as $110 billion in automatic defense and domestic spending cuts — part of the 2011 debt ceiling increase package — kick in with the New Year. About that time, the federal statutory debt ceiling of $16.3 trillion will be breached as well.

Of course you can’t expect to see these issues met in advance …

After all, it’s an election year. The Republican convention is over, and then next week it’s the Democrats’ turn to get together. So you can expect the presidential campaign to crowd out everything else until the election on November 6. And then the parties start juggling for political advantage for the next election cycle.

So the delays and temporary measures that we have come to expect from legislators will be the rule of the day, because all they will do is …

Extend and Pretend

Extend the tax cut for a short period. Kick the can down the road on spending cuts. Roll out all the old accounting gimmicks we’ve seen before to put off reality as long as possible when the debt ceiling is breached. Patch together temporary extensions in the debt ceiling as the debates and standstills continue.

It is true that the so-called “fiscal cliff” is the convergence of a lot of things at the same time. But don’t for a minute think that Washington can do anything to keep us from going over the economic edge and plunging into the abyss below.

Because we have already gone over the cliff. One simple metric makes it clear …

In July the government released the gross domestic product numbers for the second quarter of 2012. The part of the story that didn’t make the evening news is this: The federal government added $2.33 in debt for every $1 increase in GDP.

The headwinds of debt have long since blown away the green shoots of growth. We don’t have to wait for the end of the year. We have already gone over the fiscal cliff.

For Your Freedom & Prosperity,

Charles Goyette


Reprinted by Permissin of Uncommon Wisdom
For more information and archived issues, visit http://www.uncommonwisdomdaily.com a free publication of Weiss Research.

Photo Credits: By m.prinke | Cliffs of Moher- Ireland

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