Into The Abyss

The author fails to consider the vast over regulation and other Obama policies that are anti-business and pro inflation but still arrives at the conclusion we are about to fall into a great abyss.

By Peter Morici

Negotiations to avert the Fiscal Cliff offer great political drama, but they won’t solve Washington’s budget woes and may cast the nation into another recession or worse.

The Budget Act of 2011 requires the president and Congress to agree on a nine-year $1.2 trillion deficit reduction program, or cuts in annual defense and non-entitlement outlays each equal to 54.7 billion trigger on January 1. Simultaneously, the Bush Tax cuts, the 2 percentage point payroll tax holiday, and other assorted programs expire.

Altogether, $136 billion in annual spending reductions and $532 billion in additional taxes could trigger cataclysmic consequences for the economy. Unemployment would rocket past 15 percent, state government finances would collapse, homeowners would default on mortgages, and hundreds of banks would fail.

To avoid calamity, President Obama and House Republicans will likely agree to raise taxes on high income Americans by $100 to $150 billion and curb spending by an equal amount. However, those efforts will prove too little, and yet, the economy may still skid into recession—depriving the federal government of tax revenues and further pushing up the budget gap.

The federal deficit exceeds $1 trillion dollars—up from $161 billion in 2007, the last year before the financial collapse. Spending is up some $1 trillion, as outlays for Social Security, Medicare, Medicaid and other entitlements have increased by an amount equal to the entire 2013 defense budget.

By the end of the decade, runaway entitlement spending will require shutting down the military or crippling many other domestic spending programs to head off ballooning deficits.

With Americans living longer, the only reasonable solution is to raise the Social Security retirement age to 70, and pattern US health care reforms after other national systems that better contain costs.

The Germans and Dutch spend one-third less on health care than the United States, because their governments more aggressively regulate prices, better ration care, and spend less on law suits.

Democrats, hamstrung by unions, are loath to require Americans to work longer, and are too beholden to tort lawyers and the medical establishment for campaign support—hence, ObamaCare just throws more money into a broken system.

Republicans refuse to admit more competition—we already have plenty of it among providers, drug and device manufacturers and insurance companies—won’t adequately slow rocketing health care costs.

Over the next decade, without a significantly higher retirement age, effective price controls in health care and torts reform, federal spending and the national debt will jet into the stratosphere. Mounting interest payments, investor reluctance to buy US Treasurys, and consequent draconian cuts in spending will thrust the United States into the crisis now gripping Greece and Spain.

More immediately, even modest tax increases and spending cuts threaten a second recession, because President Obama and Congress failed to address dysfunctions that created the bubble and bust of the 2000s and make the economy perilously dependent on deficit spending.

From 2001 to 2005, the trade deficit doubled to more than $700 billion, thanks to subsidized imports from China, restrictions on US sales into the Middle Kingdom and rising oil prices. This resulting loss of demand for US-made goods and services should have instigated a recession; however, Chinese and Middle East oil exporters stepped up purchases of US securities, and those helped finance questionable mortgages, car loans and credit card debt. Americans spent more than they earned and the boom continued into 2007. When homeowners and other borrowers could no longer service their debts, defaults and bankruptcies resulted and the economy crashed.

A huge trade deficit with China and on oil continues, but now the federal government is doing the extra spending and borrowing for us. If budget negotiations slice $200 to $300 billion off the deficit, as is likely, GDP will contract $350 to 500 billion and unemployment will rise above 10 percent.

President Obama and House Republicans indicate no interest in genuinely confronting Beijing to force a more equitable trading relationship with the Middle Kingdom.

Slashing oil imports requires the President to permit more drilling in the Gulf, off the Atlantic and Pacific coasts and in Alaska, and for Republicans to embrace alternative energy sources and more aggressive conservation measures.

Neither seems likely.

All told, absent major changes in trade and energy policies to boost domestic demand and growth, budget deficit reduction is not possible without another long, hard recession. And absent genuine deficit reduction, the country is headed for economic chaos by the end of the decade.


Read more: http://www.foxnews.com/opinion/2012/11/12/off-fiscal-cliff-and-into-great-abyss/#ixzz2C1mtVyLt

 

I see increasingly shrill calls for Republican to sign-on to the Obama economy and "embrace alternative energy sources" and similar malarkey. It is as though in victory the Democrats expect Republicans to drop all opposition to the socialist agenda.

The Democrats don't need Republicans. The President can use executive orders to get what he wants done. Republicans in the House and Senate should not cooperate on anything. Let Harry Reid change the Senate rules so the Democrats and roll over the top of Republican opposition. Boehner should tell Obama to go fuck himself over the debt ceiling. Let the economy go off the fiscal cliff and onto the rocks below. Obama owns the economy now, let him fix it himself.

 

Pretty much my view as well. Obama is not going to accept blame for the inevitable disaster, no matter what republicans do. When has any liberal accepted blame for their own mistakes? Did Barney Frank and Chris Dodd? did Ted kennedy? No, they just shout and blame republicans. Most voters are too ignorant to know the difference.

Republicans should just keep repeating they want to get the deficit under control and the way to do that is to cut wasteful spending. Destroying the economy by raising taxes is not the answer. When Obama says it has to be balanced, say he is just trying to punish his political opponents.

This is not all that hard. Obama is bluffing. No way he goes over the fiscal cliff right after reelection. He will fold on taxes if the republicans can just hold their water. And really, WTF do the republicans have to lose? When the 2014 midterms roll around, they can blame Obama.

 

Yeah, let him have it. I heard somewhere there are petitions of nullification from 20 states so far on the Obama website. Frivolous?
I suppose so, but people ain't happy.

 

Here's the reality of it. Repubs obstruct and we go off the cliff, Obama blames repubs. Repubs let Obama have it all, and we go under as they say will happen, repubs can blame Obama. Will Obama accept all the blame? Of course not, but if at that point the American people are still too stupid to figure it out, fuck'em, they deserve whatever is coming after that.
What republicans are really afraid of is that his plan might work, or things will at least not be as bad as listening to their rhetoric would have us believe. I still contend that none of these bastards have the answer and are terrified to admit it to the public. It's a crap shoot either way and they all know it.

 

Its just that many of us are way past caring about blame and slight perceptual advantages about who is responsible etc. The Democrats won the day, let them rule using their own power. If they can't rule on their own then I guess they didn't really win, right?

As AAA said, at some point you have to stand on principle.

It is wrong to raise the debt ceiling therefore the debt ceiling should not be raised. It is simple and defensible. If the economy crashes then the Democrats can raise that issue in 2016 or in the mid-term elections in 2014 if there is anybody still paying attention. Basic survival needs often take priority and many people will concentrate on feeding their kids and keeping a roof over their heads. Maybe that is what is necessary to declutter the political landscape and get people refocused on what is right for the next generation.

 

They could have stood on principle a year ago and had the issue raised for this election. They didn't! Why? Because they have no principles. All they want is another issue to take on the campaign trail. This will never get solved because neither party wants to solve it.
You know, I know, everyone knows what we're going to get. Another "bipartisan" agreement to stall, delay, kick it down the road while they continue to negotiate. And a year form now, it'll be the same thing.
The principled thing to do would be to say, Mr. Obama, you won. America, you voted for this guy and you knew what he was going to do, and now we're going to let him do it. The principled thing for Obama to then do would be to implement his entire plan ASAP. By 2014 we'll know who was right and who was wrong. All ready on the right, all ready on the left, all ready on the firing line. FIRE! And then somebody is going to see their party get gunned down. The only question is, do they have the courage of their convictions? The answer for both parties in no, which is why they'll do nothing but stall.

 

That is actually a pretty good call you are making, that the whole thing will be deferred for a year. I think that is the most likely outcome.

My father and his partner are buying businesses left and right and they think there will be a deferral so they don't seem to be worried much.

 

It's obvious. I'm just really tired of seeing this go nowhere year after year.

 

Well I think the Bang! part of your analysis has already occurred...

Even though there are a lot of Republican governors right now, the Republican party has been just about killed off at the national level.

Romney lost by, what, 100 electoral college votes? That is pretty much the end of the Republicans for awhile so far as national politics is concerned isn't it?

If the Republicans can't forget about blame and stand on principles now then when can they ever do that?

They don't really have anything else to work with and blame assignment isn't a huge factor when your party is dead on the table with no pulse or respiration. Maybe it becomes the time to just do the right thing so that the next incarnation of the Republican party can cite that example in the future, "We did the Right Thing".