ISF Logo   IS Forum
Forum Index Register Members List Events Mark Forums Read Help

Go Back   International Skeptics Forum » General Topics » Economics, Business and Finance
 

Notices


Welcome to the International Skeptics Forum, where we discuss skepticism, critical thinking, the paranormal and science in a friendly but lively way. You are currently viewing the forum as a guest, which means you are missing out on discussing matters that are of interest to you. Please consider registering so you can gain full use of the forum features and interact with other Members. Registration is simple, fast and free! Click here to register today.
Reply
Old 12th December 2012, 08:16 AM   #1
deaman
Philosopher
 
deaman's Avatar
 
Join Date: Dec 2011
Posts: 6,156
The Fiscal Cliff.....please explain it simply.

I know this has been discussed, but I am unlearned in the clear implications and ramification of going over said cliff.

Can someone in the know please explain (in simple terms):

What the fiscal cliff is?

Why the fiscal cliff has arrived now?

What can we expect, if we go over it?

Not looking for a thesis, or dissertation, or a book, on the matter. Just some simple explanation to put it into proper perspective, for the average Joe, to whom it may have an affect.

Thank you.
deaman is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 09:13 AM   #2
Beerina
Sarcastic Conqueror of Notions
 
Beerina's Avatar
 
Join Date: Mar 2004
Posts: 24,541
It's a scare tactic-based meme whose purpose is to mislead you into continuing massive spending.

Mathematical proof: If we "rolled off the cliff" and had massive tax increases and massive spending cuts, we'd still be nowhere near a balanced budget.

To paraphrase a line from Independence Day, "Two-thirds target remains."
__________________
"Great innovations should not be forced [by way of] slender majorities." - Thomas Jefferson

The government should nationalize it! Socialized, single-payer video game development and sales now! More, cheaper, better games, right? Right?

Last edited by Beerina; 12th December 2012 at 09:15 AM.
Beerina is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 09:27 AM   #3
ehcks
Illuminator
 
Join Date: Feb 2011
Posts: 3,009
During the debt ceiling nonsense (honestly I don't see the point of it.. it has to be raised, arguing about it helps nothing) congress came up with bills of horrible tax increases and spending cuts that neither side would want to happen. The idea was that it should make them come up with a way to actually compromise on the debt/deficit issue even if just to avoid the earlier bills.

But no, congress can compromise about as well as two bratty kids in a sandbox with only one shovel. We're almost certain to have nothing before the "fiscal cliff" bills go through.

Though it's not nearly as bad as anyone says. It's an end to the Bush tax cuts, a cut in military spending, some other stuff as here:
http://en.wikipedia.org/wiki/United_...e_fiscal_cliff

It's not even close to enough to eliminate the deficit, is one important thing to note.
__________________
Never attribute to malice that which is adequately explained by stupidity.
http://en.wikipedia.org/wiki/Hanlon%27s_razor
ehcks is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 09:47 AM   #4
lomiller
Philosopher
 
lomiller's Avatar
 
Join Date: Jul 2007
Posts: 7,739
Last year when Democrats and Republicans couldn’t come to an agreement on deficit reduction they enacted a law that would cut spending and raise taxes (actually just end existing tax cuts/holidays) that would come into effect automatically if no other deal was reached.

Raising taxes takes money out of people’s pockets which causes them to spend less and companies cut back on when people spend less. Similarly, cutting spending reduces demand and again the companies selling the things that would have been purchases with this money or to the people who would have been paid with it have to cut back and lay people off.

Essentially any short term deficit reduction would cause either one of both of the effects above, which is why some people argue that you can’t make any meaningful deficit reduction until the economy is stronger. In classic Keynesian economics you are ok to run a deficit in times where the economic is weak but you have to reverse that and run a surplus to pay off the debt when the economic is stronger.

Modern thinking is more along the lines of keeping spending constant, and using monetary policy to smooth over and bumps. You still end up in a deficit situation during economic downturns due to reduced tax revenue but what you look at is the “structural” deficit, which is more or less what the deficit would have been with the short term items removed. (The US is running a structural deficit mainly from the Bush tax cuts that were never paid for with spending cuts and Medicare part D which was never paid for with tax increases.)
__________________
"Anything's possible, but only a few things actually happen"
lomiller is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 10:11 AM   #5
Weak Kitten
Graduate Poster
 
Weak Kitten's Avatar
 
Join Date: Sep 2010
Posts: 1,910
So, is it not really as bad as the pundits are making it out it be?

I find it frustrating that the pundits go on and on about how horrible the "fiscal cliff" will be without even pausing to explain what it is or why it will be so bad.
__________________
A quick reminder to all participants that although incomprehensibility is not against the Membership Agreement, incivility is. Please try and remember this, and keep your exchanges polite and respectful. -arthwollipot
Weak Kitten is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 11:28 AM   #6
Skeptic Ginger
formerly skeptigirl
 
Skeptic Ginger's Avatar
 
Join Date: Feb 2005
Posts: 44,988
Originally Posted by Weak Kitten View Post
So, is it not really as bad as the pundits are making it out it be?

I find it frustrating that the pundits go on and on about how horrible the "fiscal cliff" will be without even pausing to explain what it is or why it will be so bad.
Bill Moyers interviewed Senator Bernie Sanders last weekend on his weekly program, Moyers and Company. The program was about concentration of media ownership.

I found Sander's comment about the "fiscal cliff" reporting to be quite telling. The comment comes ~minute 15 to 17:30: Behind the corporate drive for deficit reduction is the right wing agenda to cut social spending. Hearing the mantra, "fiscal cliff" and not hearing the equally important mantra, "job crisis", (or, only hearing 'job crisis' when it is linked to the claim the only solution for the job crisis is deficit reduction & not increasing taxes on the rich), denies people the information they need in a successful democracy.

According to Sanders, deficit reduction is a serious issue but we also need to create jobs. With media monopolies, the corporate media throws out one set of ideas regardless that the public is really interested in something else.


[sidetrack] I highly recommend you watch the whole 22 minutes but if you don't have the time, at least watch the first minute or two of the introduction for context.

For you righties, Moyers seriously criticizes Obama ~minute 3. Very sad for us lefties and hopefully people will let Obama know. The problem is, the news media owners who stand to benefit, control the message, so fewer people are aware of the FCC's actions. It's not getting mainstream coverage.

~Minute 11: If Rupert Murdoch owned all the media in the country, it would be more cost effective. Cost effective and profit cannot be the only criteria for the news media's success.

~Minute 12: We need a more diverse media in order to have an informed public in order to have a successful democracy. [/sidetrack]


Getting back to "the fiscal cliff", I don't think it's all about a conspiracy in the media to limit discussion of important topics. With Fox News it is an openly propaganda directed broadcast. Many people think MSNBC is equally a liberal propaganda broadcast. But that's just not true. In one case they simply hit a target market and in the other they have daily editorial directions on how to repeat the Republican talking points. There's no evidence MSNBC has done anything so blatant. But I digress.

"Fiscal cliff" fits the news media business model. Repeat a slogan over and over, preferably one that suggests a crisis or a scandal, and don't expend costly resources actually investigating the facts or giving details that might bore the core audience that has a short attention span.

Despite the fact the Democrats, for once, ran two successive Presidential campaigns controlling the message, we are back to the right wing controlling the mainstream media message. Again, it's not because of a conspiracy, it's because the Republicans are just that much better at manipulating the media message. Obama's out giving speeches getting little national coverage while the Republics are out there giving news conferences using outrageous messages that just happen to get lots more news coverage.

Obama, while being the reasonable guy, isn't getting the slogan "job crisis" out. Nor is he getting the message out that taxing the rich is not taxing money used to create jobs. It's taxing money that is not creating jobs and using it to actually create jobs. Obama really needs to look at that "fiscal cliff" media slogan message and work on getting his own slogan out there.
__________________
(*Tired of continuing to hear the "Democrat Party" repeatedly I've decided to adopt the name, Pubbie Party, Repubs "Republics" and Republic Party in response.)

Last edited by Skeptic Ginger; 12th December 2012 at 11:30 AM.
Skeptic Ginger is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 11:28 AM   #7
lomiller
Philosopher
 
lomiller's Avatar
 
Join Date: Jul 2007
Posts: 7,739
Originally Posted by Weak Kitten View Post
So, is it not really as bad as the pundits are making it out it be?

I find it frustrating that the pundits go on and on about how horrible the "fiscal cliff" will be without even pausing to explain what it is or why it will be so bad.
It would throw the US into recession. Tax increases and spending cuts both have the effect of decreasing demand, and the private sector responds to decreases in demand with layoffs or reduced hiring, which further decreases demand.
__________________
"Anything's possible, but only a few things actually happen"
lomiller is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 11:33 AM   #8
deaman
Philosopher
 
deaman's Avatar
 
Join Date: Dec 2011
Posts: 6,156
Originally Posted by lomiller View Post
It would throw the US into recession. Tax increases and spending cuts both have the effect of decreasing demand, and the private sector responds to decreases in demand with layoffs or reduced hiring, which further decreases demand.
I was under the impression that we, and in fact the entire world, was already in a Global Recession.
deaman is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 11:37 AM   #9
Kaosium
Philosopher
 
Kaosium's Avatar
 
Join Date: Oct 2010
Posts: 6,087
Originally Posted by Weak Kitten View Post
So, is it not really as bad as the pundits are making it out it be?

I find it frustrating that the pundits go on and on about how horrible the "fiscal cliff" will be without even pausing to explain what it is or why it will be so bad.
On the first of January the Bush tax cuts expire (280 billion) and the payroll tax holiday ends (125 billion) causing roughly 400 billion to be pulled out of the economy, though only in installments as it will just happen per paycheck, as the payroll tax holiday ending will cause everyone's paycheck to decrease by 2% automatically, plus presumably withholding will have to increase to account for the new taxes they'll be scheduled to pay.

At the same time budget cuts will be enforced, causing roughly 50 billion in military spending to be forgone, along with another 50 billion in across the board cuts, as well as 40 billion in emergency unemployment benefits expiring. The whole package, roughly 400 billion in taxes and ~150 billion in spending decreases will pull on the order of 550 billion out of the economy and (hopefully!) reduce the deficit by about half.

The cost for this is estimated (by CBO--the nonpartisan Congressional Budget Office) to be a decrease in GDP of around four percentage points, causing a recession and about two million more unemployed. However that ought to be only if the entire year goes by, it's not actually a 'cliff' from which one falls and there's no possible recovery, Congress and the Administration can come to an agreement where only some of the taxes go up and most of the deleterious effects the rest of the year are mitigated.

However there is one element which is already being affected and might cause problems were it to go too close to the end of the year, and that's what might happen to investors. Ones making over 250k/year are also going to be hit by the Obamacare surtax and may end up paying as much as 43.4% tax on dividends as well as an increased capital gains tax were they to sell. As a result some have been divesting themselves of potentially affected assets to the detriment of companies who need the investment, more of that may occur if the New Year gets closer without a deal.
__________________
"Honi soit qui mal y pense."
Kaosium is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 02:38 PM   #10
lomiller
Philosopher
 
lomiller's Avatar
 
Join Date: Jul 2007
Posts: 7,739
Originally Posted by deaman View Post
I was under the impression that we, and in fact the entire world, was already in a Global Recession.
The US is not currently in recession and has not been since mid 2009. It’s not operating anywhere near full capacity, but it’s not in recession either.
__________________
"Anything's possible, but only a few things actually happen"
lomiller is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 02:46 PM   #11
geni
Anti-homeopathy illuminati member
 
geni's Avatar
 
Join Date: Oct 2003
Posts: 28,286
Originally Posted by Weak Kitten View Post
So, is it not really as bad as the pundits are making it out it be?

I find it frustrating that the pundits go on and on about how horrible the "fiscal cliff" will be without even pausing to explain what it is or why it will be so bad.
Hard to say really. Best case senario is that you get a short term economic downturn. Worse case is global economic collapse.
geni is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 02:47 PM   #12
geni
Anti-homeopathy illuminati member
 
geni's Avatar
 
Join Date: Oct 2003
Posts: 28,286
Originally Posted by Beerina View Post
It's a scare tactic-based meme whose purpose is to mislead you into continuing massive spending.

Mathematical proof: If we "rolled off the cliff" and had massive tax increases and massive spending cuts, we'd still be nowhere near a balanced budget.

To paraphrase a line from Independence Day, "Two-thirds target remains."
You keep claiming this and you keep being wrong because you suffer from an unreasonable level of optomism. Could you just leave the matter alone until you are prepared to be more realistic?
geni is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 02:54 PM   #13
The Central Scrutinizer
Penultimate Amazing
 
The Central Scrutinizer's Avatar
 
Join Date: Dec 2001
Posts: 48,027
Originally Posted by deaman View Post
What can we expect, if we go over it?
Hopefully the stock market will drop significantly, increasing the chances that shares in great businesses will go on sale, at least for a little while.
__________________
If I see somebody with a gun on a plane? I'll kill him.

Lupus is Lupus tor central scrutineezer
The Central Scrutinizer is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 03:14 PM   #14
ehcks
Illuminator
 
Join Date: Feb 2011
Posts: 3,009
Originally Posted by Kaosium View Post
On the first of January the Bush tax cuts expire (280 billion) and the payroll tax holiday ends (125 billion) causing roughly 400 billion to be pulled out of the economy, though only in installments as it will just happen per paycheck, as the payroll tax holiday ending will cause everyone's paycheck to decrease by 2% automatically, plus presumably withholding will have to increase to account for the new taxes they'll be scheduled to pay.
That makes no sense. Taxes do not remove money from the economy. Only the FED can do that, and it certainly isn't right now.

Taxes merely change where the money goes. It's still in the economy, just in a different part.
__________________
Never attribute to malice that which is adequately explained by stupidity.
http://en.wikipedia.org/wiki/Hanlon%27s_razor
ehcks is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 03:21 PM   #15
patchbunny
Graduate Poster
 
patchbunny's Avatar
 
Join Date: May 2004
Location: Right about... here.
Posts: 1,784
Originally Posted by The Central Scrutinizer View Post
Hopefully the stock market will drop significantly, increasing the chances that shares in great businesses will go on sale, at least for a little while.
That's more or less what I'm wondering. I have cash to invest, but am not sure when I should invest.
__________________
"So, they laugh at my boner, will they? I'll show them! I'll show them how many boners the Joker can make!" -- The Joker, Batman #66
patchbunny is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 03:58 PM   #16
The Central Scrutinizer
Penultimate Amazing
 
The Central Scrutinizer's Avatar
 
Join Date: Dec 2001
Posts: 48,027
Originally Posted by patchbunny View Post
That's more or less what I'm wondering. I have cash to invest, but am not sure when I should invest.
After Jan 1st.

Even if we don't go over the cliff now, there will be upcoming fights over the debt ceiling sometime early next year.

And remember, it's always OK to sit on the sidelines. You don't have to invest just because you have cash. Wait for something attractive to come along.
__________________
If I see somebody with a gun on a plane? I'll kill him.

Lupus is Lupus tor central scrutineezer
The Central Scrutinizer is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 04:13 PM   #17
Kaosium
Philosopher
 
Kaosium's Avatar
 
Join Date: Oct 2010
Posts: 6,087
Originally Posted by ehcks View Post
That makes no sense. Taxes do not remove money from the economy. Only the FED can do that, and it certainly isn't right now.

Taxes merely change where the money goes. It's still in the economy, just in a different part.
Relying on deficit spending of this magnitude changes that equation somewhat, which is why it became so popular--and addictive--to governments.

OK, let's say the average person gets their first paycheck of the year and they're not only missing the 2% for the FICA tax being restored but also their withholding amount increased and their paycheck is actually 10% short of where it was the last payday in December. Those consumers are going to have less money to spend, thus they'll likely spend less money. That's what I was getting at.
__________________
"Honi soit qui mal y pense."
Kaosium is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 04:18 PM   #18
Kaosium
Philosopher
 
Kaosium's Avatar
 
Join Date: Oct 2010
Posts: 6,087
Originally Posted by lomiller View Post
The US is not currently in recession and has not been since mid 2009. It’s not operating anywhere near full capacity, but it’s not in recession either.
How much of that 'growth' could be attributed to increased deficit spending?
__________________
"Honi soit qui mal y pense."
Kaosium is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 06:34 PM   #19
psionl0
Skeptical about skeptics
 
psionl0's Avatar
 
Join Date: Sep 2010
Location: 31°58'S 115°57'E
Posts: 7,265
Originally Posted by ehcks View Post
That makes no sense. Taxes do not remove money from the economy. Only the FED can do that, and it certainly isn't right now.

Taxes merely change where the money goes. It's still in the economy, just in a different part.
Actually, taxes do remove money from the economy and so do government borrowings. Government expenditure adds money to the economy.

Typical government policy is for taxes and borrowings to equal expenditure. The fed increases the amount of money in the economy by buying up government bonds. In the past governments have run unfunded deficits (spending more than it takes in taxes) which is equivalent to printing money.
psionl0 is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 07:13 PM   #20
Puppycow
Penultimate Amazing
 
Puppycow's Avatar
 
Join Date: Jan 2003
Posts: 18,436
Originally Posted by lomiller View Post
It would throw the US into recession. Tax increases and spending cuts both have the effect of decreasing demand, and the private sector responds to decreases in demand with layoffs or reduced hiring, which further decreases demand.
It might throw the US into recession. No one, no economist that I am aware of, is able to predict the economic future consistently.

Can you tell me what the unemployment rate will be in six months or 12 months?
Can you tell me what the rate of GDP growth will be in the next year? And can you do it consistently?

There are a lot of positive trends* in the US economy right now, and I don't think it's a given that the US would go into recession. The US has had economic growth, even strong economic growth in the past under higher tax rates. The US had economic growth in the 90s while cutting government spending. I'm skeptical of all the economists who think they know what the result of this would be when economists cannot consistently predict the timing of business cycles.

* E.g. an industrial revival based on new technology, onshoring, recovery in the housing market, and a proactive Fed.
__________________
“Some men are born mediocre, some men achieve mediocrity, and some men have mediocrity thrust upon them. With Major Major it had been all three.”
― Joseph Heller, Catch-22
Puppycow is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 12th December 2012, 10:54 PM   #21
JoeTheJuggler
Penultimate Amazing
 
JoeTheJuggler's Avatar
 
Join Date: Jun 2006
Posts: 27,770
Originally Posted by Puppycow View Post
It might throw the US into recession. No one, no economist that I am aware of, is able to predict the economic future consistently.

Can you tell me what the unemployment rate will be in six months or 12 months?
Can you tell me what the rate of GDP growth will be in the next year? And can you do it consistently?

There are a lot of positive trends* in the US economy right now, and I don't think it's a given that the US would go into recession. The US has had economic growth, even strong economic growth in the past under higher tax rates. The US had economic growth in the 90s while cutting government spending. I'm skeptical of all the economists who think they know what the result of this would be when economists cannot consistently predict the timing of business cycles.

* E.g. an industrial revival based on new technology, onshoring, recovery in the housing market, and a proactive Fed.
The spending cuts would be pretty drastic. Also, we have to count in the fiscal cliff hitting the debt ceiling again around mid-January. Going over the fiscal cliff means doing nothing to stop any of the tax events from happening, nothing to stop the automatic sequestration spending cuts, and nothing to raise the debt ceiling. (Those other measures would not keep us under the debt ceiling, BTW.)

Maybe it's not certain to send us into a recession, but it's a fairly likely outcome. There's certainly no guarantee that it won't, and that uncertainty alone has already had effects on the economy.

The idea was that the fiscal cliff was meant to be unacceptable to both sides so as to force a compromise during this lame duck Congressional session.
__________________
"That is a very graphic analogy which aids understanding wonderfully while being, strictly speaking, wrong in every possible way." —Ponder Stibbons
JoeTheJuggler is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 13th December 2012, 10:27 AM   #22
lomiller
Philosopher
 
lomiller's Avatar
 
Join Date: Jul 2007
Posts: 7,739
Originally Posted by ehcks View Post
That makes no sense. Taxes do not remove money from the economy. Only the FED can do that, and it certainly isn't right now.

Taxes merely change where the money goes. It's still in the economy, just in a different part.
Fewer purchases means a reduction in money velocity which has the effect of shrinking the money supply. During economic slowdowns the Fed increases the base money supply to help offset this and keep the M2 money supply constant. Since the financial crisis in 2008 the base money supply has more than doubled but the M2 supply, which the economy responds to, has increased only a little.



Originally Posted by Puppycow View Post
It might throw the US into recession. No one, no economist that I am aware of, is able to predict the economic future consistently.
Ben Bernanke has stated that it would throw the US into recession. While it’s possible he is mistaken, the Fed has more and better data available than anyone else. It is the best source of this type of information available.
__________________
"Anything's possible, but only a few things actually happen"
lomiller is online now   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 18th December 2012, 11:01 AM   #23
stevea
Graduate Poster
 
Join Date: Aug 2007
Posts: 1,401
Originally Posted by lomiller View Post
Raising taxes takes money out of people’s pockets which causes them to spend less and companies cut back on when people spend less. Similarly, cutting spending reduces demand and again the companies selling the things that would have been purchases with this money or to the people who would have been paid with it have to cut back and lay people off.
Yes, correct, however you make the fatal error of failing to compare these outcomes with their alternatives. Failing to raise taxes means deficit spending, borrowing, and interest&principle payments in the future and these directly reduce GDP. Similarly, failing to cut spending means either additional taxes or additional deficits and leads to the same growth stalling burdensome debt picture.

So we have a significantly higher GDP currently due to borrowing (some large fraction of $1.2Trl/year) and spending the amount of external borrowing. It's not dissimilar to living a better lifestyle on borrowed money in personal finance. It's widely estimated that current GDP would fall 4-5% (back to reality) if the deficits were eliminated. Living on borrowed money is pleasant ... until it's not.

Quote:
In classic Keynesian economics you are ok to run a deficit in times where the economic is weak but you have to reverse that and run a surplus to pay off the debt when the economic is stronger.
Right - so let's examine that idea. We have a growth/recession cycle on average once every 5.5 years. Today we stand a full 5 years past the beginning of the recent downturn. As you say later, we are not currently in recession. So by any reasonable measure it is long past time to stop this Keynesian stimuli plan. We must accept that the current GDP minus ~4.5% of boost is the new normal.


Quote:
(The US is running a structural deficit mainly from the Bush tax cuts that were never paid for with spending cuts and Medicare part D which was never paid for with tax increases.)
I don't support the 10 year length of the Bush2 tax cuts for the very same reason I can't support any further Keynesian stimuli; a recession is typically 2 years, not a 5 or 10 year event. However it's nonsense to claim that a ~$330B annual cost of the tax cuts and the $30B annual cost of part D add up to deficits that no one projects will drop below $1T annually. Your budget thinking has more more holes than substance.

It's silly to point to one one or few programs. The total cost of all non-discretionary spending (primarily SS, Medicare/caid, Federal pensions, welfare) now exceeds all tax revenues. The main cause of the STRUCTURAL deficit is that people have voted themselves more benefits than they pay for. Then we have a ~$685B (IIRC) annual military expenditure that is 4x the nearest competitor, China. There are plenty of problem programs, in fact few good ones..

I'll also point you you are arguing both sides of the issue:
Bush tax cuts = deficit = bad.
Tax increases = less spending = bad.
Both are indeed bad, but you can't have it both ways.


Originally Posted by lomiller View Post
Tax increases and spending cuts both have the effect of decreasing demand, and the private sector responds to decreases in demand with layoffs or reduced hiring, which further decreases demand.
Right, but again you fail to describe the alternative scenario for comparison. No tax increases and no spending cuts mean high deficits, which detract from GDP & growth and makes future US budget subject to the interest rate variations.

Originally Posted by lomiller View Post
Fewer purchases means a reduction in money velocity which has the effect of shrinking the money supply.
No no no ! Your understanding of money supply is wrong. Velocity does not determine the money supply. M2 has never decreased in half a century or more, while velocity takes a dive every decade or so.

What you describe is a recession, a drop in GDP. A recession is often, but not always associated with a reduced velocity of money. Velocity drops are more closely associated with deflation.

In more detail, taxed money is still spent, but the government instead of the earner. Taxing your own populace and spending the money domestically has no impact on GDP. The main difference is that the reduction in deficit borrowing decreases the amount of Federal purchases which of course reduces GDP. A secondary effect is that some of the tax money is shipped overseas to pay interest on debt, and this detracts from GDP ~[$380B annually on interest, tho ~half+ is domestic].

Quote:
During economic slowdowns the Fed increases the base money supply to help offset this and keep the M2 money supply constant.
No. Money supply is not increased to keep M2 constant (M2 rarely decreases), but to combat deflation. IOW increasing the money supply decreases the velocity. I suggest you read Bernanke's "helicopter" speech circa 2002 on this topic.

Quote:
Since the financial crisis in 2008 the base money supply has more than doubled but the M2 supply, which the economy responds to, has increased only a little.
That's a distorted view of the issue. From Jan 2008 to Nov 2012 (according to Fed seasonally adjusted numbers (in billion$)

M1: 1381.7 ... 2395.9 (an increase of 1014.2, 73% not double)
M2: 7482.7 ... 10269.5 (an increase of 2786.8)

So the salient facts are that the M2/M1 ratio is declining which implies less PRIVATE lending than the historic norm has occurred (not true of public lending). This is no surprise in a low growth environment where banks are loath to lend.

Quote:
Ben Bernanke has stated that it would throw the US into recession. While it’s possible he is mistaken, the Fed has more and better data available than anyone else. It is the best source of this type of information available.
Absolutely. There is little question that any fiscally prudent plan would decrease GDP, and therefore, by definition, cause recession. What this statement glibly ignores is that ~5% of current GDP is based on profligate borrowing from other nations. [borrowing not for productive capital expenditures]. The issue is whether any politician has the b*lls to make this hard truth public and forge policy based on rectifying it.

Bernanke's statement is quite like predicting that your standard of living will fall if you stop racking up an extra $2k on credit cards every month. Duh ! Who is willing to stop the party and cut up the credit cards ?


===========

We are indeed caught between two bad alternatives. We can continue to live high by borrowing and racking up debt that is certain to damage and possibly ruin our futures, or we can get fiscally responsible today, take a ~5% GDP cut today, but get onto a path that would encourage GDP growth and greater stability in the future. It's a clear cut choice.

I'm not immune to the Keynesian stimulus argument, despite that it has largely failed us this time and left us with huge debts. But the intention was to use this during during recessions with unemployment and repaid otherwise. We are past the recession and the remaining unemployment seems mostly structural, not cyclical. Sadly we've landed a couple rungs down the ladder. We need to realize that and move on; not pretend that 2007 is just around the corner if we keep borrowing. It's time to stop stimulating and start paying down the debt IMO.
stevea is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 22nd December 2012, 06:04 AM   #24
kellyb
Philosopher
 
kellyb's Avatar
 
Join Date: Jan 2006
Posts: 5,467
Simple:
http://www.democracynow.org/2012/12/...iggest_myth_in

Lest you doubt his creds, see:
http://economistsview.typepad.com/ec...governmen.html
(notice the date)
__________________
The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts ~ Bertrand Russell
kellyb is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 22nd December 2012, 01:56 PM   #25
psionl0
Skeptical about skeptics
 
psionl0's Avatar
 
Join Date: Sep 2010
Location: 31°58'S 115°57'E
Posts: 7,265
Originally Posted by kellyb View Post
What are you getting at? Who are you responding to?
psionl0 is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 22nd December 2012, 05:14 PM   #26
mike3
Master Poster
 
Join Date: Aug 2009
Posts: 2,311
Originally Posted by Beerina View Post
It's a scare tactic-based meme whose purpose is to mislead you into continuing massive spending.

Mathematical proof: If we "rolled off the cliff" and had massive tax increases and massive spending cuts, we'd still be nowhere near a balanced budget.

To paraphrase a line from Independence Day, "Two-thirds target remains."
So if even having both massive tax increase and spending cuts wouldn't make a balanced budget, what would?
__________________
“Ego is subversive and devolutionary, truly destructive and terrible; ego is the generator of privilege, established institutions, and comfortable habit. Ego is the fire that burns within the pit of hell, devouring and consuming everything that enters and leaving utterly nothing behind. Ego is horrible, cruel, and restraining, the darkness of the world, and the doom and bane of man.” – my reaction to that famous Bertrand Russell quote.
mike3 is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 22nd December 2012, 06:43 PM   #27
balrog666
Eigenmode: Cynic
 
balrog666's Avatar
 
Join Date: May 2004
Posts: 2,974
Originally Posted by mike3 View Post
So if even having both massive tax increase and spending cuts wouldn't make a balanced budget, what would?


Massive spending cuts???? 2.5% is massive??

Bwaaaaaaaaaaaaaaaaaaahahahahaha!

Try 35% if you want massive!
__________________
A person who won't think has no advantage over one who can't think. - (paraphrased) Mark Twain

Political language… is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind. – George Orwell
balrog666 is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 22nd December 2012, 08:01 PM   #28
IchabodPlain
Graduate Poster
 
IchabodPlain's Avatar
 
Join Date: Nov 2007
Posts: 1,252
Originally Posted by ehcks View Post
During the debt ceiling nonsense (honestly I don't see the point of it.. it has to be raised, arguing about it helps nothing).
Leverage:
Quote:
power or ability to act or to influence people, events, decisions, etc.; sway: Being the only industry in town gave the company considerable leverage in its union negotiations. Synonyms: advantage, strength, weight; clout, pull.
__________________
...and with the joy of responsibility comes the burden of obligation. ~ Hank Hill
IchabodPlain is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 26th December 2012, 10:19 PM   #29
kellyb
Philosopher
 
kellyb's Avatar
 
Join Date: Jan 2006
Posts: 5,467
Originally Posted by psionl0 View Post
What are you getting at? Who are you responding to?
I was addressing anyone who didn't understand the "fiscal cliff".

The point of asking dates to be noted is that this economist was one of very few who predicted the 2008 crash.
__________________
The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts ~ Bertrand Russell
kellyb is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 27th December 2012, 01:24 AM   #30
stevea
Graduate Poster
 
Join Date: Aug 2007
Posts: 1,401
Originally Posted by mike3 View Post
So if even having both massive tax increase and spending cuts wouldn't make a balanced budget, what would?
There is no short term solution.

One extreme is to continue as we have with minor tweaks and end up like a Greece but too-big-to-bail-out then a severe crash. We'd likely try to print money to meet obligations causing inflation and a rejection of the dollar. It would be difficult and lengthy to recover from such a crash.

Alternatively becoming extremely fiscally conservative in a rush - higher taxes, less spending, government layoffs which might close ~60% of the deficit and as a result we'd have a serious recession & spike in unemployment. It would be quite ugly, but *might* be a good basis for a recovery and future growth.

There are no pretty scenarios. There is perhaps a dangerous & difficult middle path that is unlikely to be trouble-free, could work, and IMO very unlikely to be followed by the current crop of pandering politicians and their knuckle-dragging partisan true-believers

We need real economic growth to get out of this ditch without either crashes, or depressions. Growth has the happy results of increasing tax revenue w/o increasing rates, decreasing unemployment and strengthening the currency. This might mean pro-biz, pro-trade policies and encouraging PRIVATE sector investment, finding decent ways to marginally cut social program costs and other governmental expenditures. So higher RATES on cap-gains and dividends and corporate taxes are quite likely to be very detrimental. Higher regulatory and hiring costs are quite negative. Even the continual changes in tax policy discourages investment and capital formation.

I'd wager that an Obama-esque plan (higher tax rates on the top 2%, higher biz-taxes, higher dividend and cap-gains taxes) is likely to be implemented by February with microscopic budget cuts under 1% of GDP. I think this will lead eventually to a modest recession and generally discourage growth. This still leaves us on a path toward unsustainable debt.

Last edited by stevea; 27th December 2012 at 01:36 AM.
stevea is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 27th December 2012, 01:59 AM   #31
stevea
Graduate Poster
 
Join Date: Aug 2007
Posts: 1,401
Originally Posted by kellyb View Post
I was addressing anyone who didn't understand the "fiscal cliff".

The point of asking dates to be noted is that this economist was one of very few who predicted the 2008 crash.
Whew - let's step back a moment.

Dean Baker suggested there was a housing bubble that would eventually collapse. But the housing bubble peaked in late 2005, and was crashing by 2007. 2008 was just the peak of the recession, way too late.

I sincerely do like Dean Baker, but you can always and at every time find someone predicting a crash of anything - unless he put his money up, their is quantifiable indication that this was more than an academic exercise.

I think you should study what Dean Baker actually suggested as a remedy before you use him a source. He was very much against the Paulson bank bailouts. I happen to agree, but few others will.
stevea is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 27th December 2012, 07:30 AM   #32
kellyb
Philosopher
 
kellyb's Avatar
 
Join Date: Jan 2006
Posts: 5,467
Whatever.
Mr Alan "maybe I see a little froth" Greenspan was still in bubble-denialism in 2007. And Dean Baker was screaming about how bad it was going to suck when the 8 trillion dollar housing bubble burst.

ETA:
I've read almost everything Baker has written. And he's right about the bailouts.
The insolvent institutions should have been taken under federal control, like the law said they should have been.
__________________
The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts ~ Bertrand Russell

Last edited by kellyb; 27th December 2012 at 07:35 AM.
kellyb is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 28th December 2012, 11:19 AM   #33
Tippit
Master Poster
 
Tippit's Avatar
 
Join Date: Jul 2007
Posts: 2,329
Originally Posted by stevea View Post
There is no short term solution.
There is a short term, and in fact, immediate solution. Since most sovereign credit was issued to private banks by central banks at ridiculously low subsidized rates and then flipped into government bonds for guaranteed no-risk profits, it is therefore illegitimate, and counterfeit. We as taxpayers don't have to continue paying interest on illegitimate debt, we can cancel it. We can selectively identify which creditors are the ones who benefit from perpetual central bank favors, and, after jailing the parties responsible, cancel the debts held by these parasitical non-producers. The national debt is roughly $16 trillion, and servicing the interest costs roughly $380 billion per year, even in this low interest rate environment. Reducing that amount by a large proportion would go a long way towards actually providing government services that taxpayers pay for, instead of using taxpayer dollars to pay off glorified counterfeiters.

Quote:

One extreme is to continue as we have with minor tweaks and end up like a Greece but too-big-to-bail-out then a severe crash. We'd likely try to print money to meet obligations causing inflation and a rejection of the dollar. It would be difficult and lengthy to recover from such a crash.

Alternatively becoming extremely fiscally conservative in a rush - higher taxes, less spending, government layoffs which might close ~60% of the deficit and as a result we'd have a serious recession & spike in unemployment. It would be quite ugly, but *might* be a good basis for a recovery and future growth.

There are no pretty scenarios. There is perhaps a dangerous & difficult middle path that is unlikely to be trouble-free, could work, and IMO very unlikely to be followed by the current crop of pandering politicians and their knuckle-dragging partisan true-believers
Just because the media doesn't talk about the illegitimacy and counterfeit nature of our monetary and banking system, doesn't mean it isn't so, and doesn't mean that debt repudiation isn't a valid option. It's just not mentioned because it is unthinkable by the banking establishment - they must receive their tribute.

Quote:

We need real economic growth to get out of this ditch without either crashes, or depressions. Growth has the happy results of increasing tax revenue w/o increasing rates, decreasing unemployment and strengthening the currency. This might mean pro-biz, pro-trade policies and encouraging PRIVATE sector investment, finding decent ways to marginally cut social program costs and other governmental expenditures. So higher RATES on cap-gains and dividends and corporate taxes are quite likely to be very detrimental. Higher regulatory and hiring costs are quite negative. Even the continual changes in tax policy discourages investment and capital formation.

I'd wager that an Obama-esque plan (higher tax rates on the top 2%, higher biz-taxes, higher dividend and cap-gains taxes) is likely to be implemented by February with microscopic budget cuts under 1% of GDP. I think this will lead eventually to a modest recession and generally discourage growth. This still leaves us on a path toward unsustainable debt.
The problem has to do with the perceived sanctity of debt service as a legitimate expense, not the phony conflict between reducing government spending versus raising taxes on the "rich" (which really means everyone).
__________________
"Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again... But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money."
- Josiah Stamp

Last edited by Tippit; 28th December 2012 at 11:23 AM.
Tippit is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 28th December 2012, 11:50 AM   #34
Tippit
Master Poster
 
Tippit's Avatar
 
Join Date: Jul 2007
Posts: 2,329
I'm surprised that no one has mentioned the Budget Control Act of 2011 in this thread, as it is the essence of the "fiscal cliff". It basically calls for automatic tax increases (expiration of tax cuts, whatever you wish to call it), and automatic spending cuts if no bill is passed by congress amounting to at least $1.2 trillion in cuts.

Of course, what no one is talking about, and what everyone should be talking about, is making cuts in the US government's interest expense by defaulting on debt held by the beneficiaries of legalized counterfeiting - wall street and various sovereign nations who are our "creditors". That should be where spending cuts start, but not where they end.
__________________
"Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again... But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money."
- Josiah Stamp
Tippit is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 28th December 2012, 12:01 PM   #35
JoeBentley
Self Employed
Remittance Man
 
JoeBentley's Avatar
 
Join Date: Nov 2009
Location: Jacksonville, FL
Posts: 3,382
Originally Posted by mike3 View Post
So if even having both massive tax increase and spending cuts wouldn't make a balanced budget, what would?
Because we're not talking a massive anything. The numbers being childishly fought over are nothing. Its like the mommy and daddy of a household that makes 20 thousand a year and spends 50 thousand a year and is 200 thousand in debt fighting to the death over 5 bucks.
__________________
- Opinions require evidence and no before you ask defining something as "Something doesn't require evidence" doesn't count.
- In extreme cases continuing to be wrong when you've been repeatedly proven to be wrong is a form of rudeness.
- Major in philosophy. That way you can also ask people "why" they would like fries with that.
JoeBentley is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 28th December 2012, 12:41 PM   #36
scratchy
Muse
 
scratchy's Avatar
 
Join Date: Apr 2004
Posts: 624
Seems like US citizens has a long stretch to go scaling down their living expences substantially. The question is only who will take the worst hit: Those who would change from four cars to three or those who would change from trailer living to living in a stranded car. But the answer is allready in - middle class and poor are going to get screwed big time, thats for sure. Luckily, being well off is relative to everybody else, so the 10 % richest can actually experience an improvement while scaling down, if the other 90 % just gets hit so much harder. So, you see, its just a problem of perception.
scratchy is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 28th December 2012, 02:03 PM   #37
daenku32
Master Poster
 
Join Date: Dec 2002
Posts: 2,124
The thread is already tldr. So:

What is "Fiscal Cliff"?
It is the recession that comes when you bring down the deficit too quickly.

It takes money out of the GDP = C + I + GS + NE equation. GS is government spending, and taxes on working and middle classes effect mostly strongly the C by bringing it down. Decrease the GS & C and you are in a recession.

The 'I' is not being effected by current government debt or borrowing. But a recession will cut it hard. NE is net exports, which will only go up if US dollar comes down.
daenku32 is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 28th December 2012, 06:50 PM   #38
JoeBentley
Self Employed
Remittance Man
 
JoeBentley's Avatar
 
Join Date: Nov 2009
Location: Jacksonville, FL
Posts: 3,382
So long story short the left and the right couldn't agree on how to budget the country so they made up a self imposed doomsday switch to go off in the future figuring the problem would just magically fix itself by then and low and behold when it didn't they know can't figure out how to get themselves out of the crisis they created as a way to force them to deal with the crisis.
__________________
- Opinions require evidence and no before you ask defining something as "Something doesn't require evidence" doesn't count.
- In extreme cases continuing to be wrong when you've been repeatedly proven to be wrong is a form of rudeness.
- Major in philosophy. That way you can also ask people "why" they would like fries with that.
JoeBentley is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 28th December 2012, 07:27 PM   #39
Pup
Illuminator
 
Pup's Avatar
 
Join Date: Dec 2004
Posts: 4,756
Originally Posted by Tippit View Post
Of course, what no one is talking about, and what everyone should be talking about, is making cuts in the US government's interest expense by defaulting on debt held by the beneficiaries of legalized counterfeiting - wall street and various sovereign nations who are our "creditors". That should be where spending cuts start, but not where they end.
I'm not up on buzz-words like "legalized counterfeiting," but it seems you're talking about Treasury bills, notes, etc., and saying that the US government should default on them?

That would increase the cost of debt in the long run, not lower it, by making the government have to borrow in the future at sky-high rates, like people do when they really, really screw up their credit and have to go to the payday loan store on the corner because they can't get a loan any other way. Fortunately, economists realize that, which is why no one's talking about it.
Pup is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Old 28th December 2012, 07:34 PM   #40
psionl0
Skeptical about skeptics
 
psionl0's Avatar
 
Join Date: Sep 2010
Location: 31°58'S 115°57'E
Posts: 7,265
Originally Posted by Pup View Post
I'm not up on buzz-words like "legalized counterfeiting," but it seems you're talking about Treasury bills, notes, etc., and saying that the US government should default on them?
Tippit is saying that banks print money to buy the bonds (and since banks create money out of thin air you don't have to pay it back ).

Even if that conclusion was sensible, it doesn't address the fact that the government spends far more than it receives.
psionl0 is offline   Quote this post in a PM   Nominate this post for this month's language award Copy a direct link to this post Reply With Quote Back to Top
Reply

International Skeptics Forum » General Topics » Economics, Business and Finance

Bookmarks

Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump


All times are GMT -7. The time now is 02:03 PM.
Powered by vBulletin. Copyright ©2000 - 2014, Jelsoft Enterprises Ltd.
© 2014, TribeTech AB. All Rights Reserved.
This forum began as part of the James Randi Education Foundation (JREF). However, the forum now exists as
an independent entity with no affiliation with or endorsement by the JREF, including the section in reference to "JREF" topics.

Disclaimer: Messages posted in the Forum are solely the opinion of their authors.