Wednesday, December 26, 2012

The Clock Is Ticking

'Bread line' during the 1930s era depression
Once again I feel forced to talk about an issue that is not specifically Jewish, But I feel the need to vent my frustration over this. So I will say a quick word about what has come to be called “The Fiscal Cliff”.  Here is my current feeling about our government officials on both sides of the political aisle. “A plague on both your houses!”

OK.  I don’t actually wish that they get some sort of horrible disease… like the Bubonic Plague. But I am thoroughly disgusted with 2 out of the 3 separate but equal branches of government. The Executive and Legislative.

For those not familiar with the issue now before us...  there is something about to happen (if nothing is done) that may well destroy the economy far worse than  than anything that has happened since the depression of the 1930s.

Although what follows is an over simplification, I think it will explain in a general way what the problem is and why both political parties are to blame.

If congress doesn’t pass a budget which will be signed into law by the President, by the end of this year, then on January 1st 2013 taxes will rise on everyone. Rich and poor alike. And major ‘Draconian’ cuts will be made to the federal budget in all government programs. Including  vital ones like defense.

This will put enormous downward pressure on the economy. It will stifle consumer spending; which will stifle production of goods and services; which will cause a substantial increase in unemployment… which will further negatively impact the economy into an accelerated downward spiral. I can almost see a 30s style depression taking hold.

These first of the year government budget cuts and tax increases are automatic. They were passed by congress for purposes of pressuring the government to balance the federal budget. Without such pressure it was felt that the deficit would continue to increase to the point where it would damage the economy in another more serious way. Perhaps irreparably. The world would lose faith in the American dollar. Which would reduce its value substantially. And rather suddenly I suspect. 

Worst case scenario - the value of the dollar could spiral downward and out of control.  In today’s global economy the impact could be even greater than it was when it happened in Germany post World War I. Inflation was so rampant that the German mark became virtually worthless. And we all know what Germany did after that. This scenario has been labeled going over the fiscal cliff by Federal Reserve Chairman Ben Bernankhe.  I think that is an apt description.

What’s holding back a passing a budget? Foolish posturing by both political parties.

On the one hand the President and Democrats in congress wants to increase taxes on the wealthy. His most recent proposal being that people making over $400,000 a year should have a tax increase.  They can afford it - and it’s only fair says the President that the rich contribute their share. That’s true.

But the Republicans in congress argue that it is nothing more than a symbolic gesture and that the increased revenue will be insginificant in trying to achieve a balanced budget. That’s true too.

Republicans want to see a reduction in government spending on entitlement programs. The President  and Democrats in congress refuse to do anything significantly more than what has already done in that department – claiming that any further cuts will hurt the elderly; the poor; and even the middle class. They claim the cuts already made go far enough.

They are both right. It will not kill anyone if the rich pay a little more in taxes next year - but it will not make one iota of difference if they don’t. Were either side to give in on this issue no one would lose anything but their own pride.

On the other side of the aisle, if the President remains stubborn about refusing to cut spending  even if it is for good reasons having to do with fairness or protecting the environment - wait until  January first. Then all of those programs will be cut and then some. All the programs he wants to spare would be in worse shape than if he were to gives into Republican demands to reduce spending on them now.

And yet neither seems to be willing to budge.  If the economy collapses because of this, both the President and the entire congress of the United States ought to both be fired!