Keeping Sight of the Cliff
A problem can never be solved unless both it and the desired outcome are clearly defined. The worst possible thing to do in any negotiation is to lose sight of what you are negotiating for; unfortunately, losing sight may be exactly what is happening with the "fiscal cliff". The debate has somehow become focused on the singular issue of tax hikes, but the problem is multifaceted, and the best course of action may have been lost in the fog.
The "fiscal cliff" is more like a mountainous landscape, with slopes, falls, rapids, and precipices. The United States has found itself lost in the mountains, surrounded by dangers, and it needs to navigate a path back to safety. The destination and terrain are being argued about while the country continues to move forward down an increasingly dangerous path. But this argument is both necessary and beneficial. President Obama and the Democratic Party have grossly misjudged both their desired destination and the safety of the path. For the Republicans, the destination is obvious, and there are many ways to get there, but some ways are harder than others.
The current situation reveals five obstacles ahead of us: Obama's tax increase on the investment class, the ObamaCare taxes, the ObamaCare mandates, the Obama-controlled sequester cuts, and Obama's excessive borrowing and printing. Putting all of this on Obama is a bit unfair, because the rest of the Democratic Party did a fine job helping him (not to mention more than a few Republicans), but it is important to realize that the crucial person who must act to avoid this mess is the one who created it. Unfortunately, Obama believes this path is necessary, and even worse, Obama has already sent us down it. To stay the course, Obama just needs to make certain that nothing happens. It looks as though we will be going over the "fiscal cliff", but we are not yet doomed.
We need to look at this landscape again. The tax increases are more like rapids, the ObamaCare mandates are a steep slope, and the sequester cuts are like a briar patch. We might get wet, twist an ankle, break a bone or two, and get scratched up, but none of those four obstacles is much worse than the path we have already traveled. The people and companies of the United States have been overtaxed, overregulated and overdictated to for a long time. This path is not all bad either, for along it lies a golden cave of doom, also known as Obama's tax increases on the poor and middle class. The only question is whether Republicans will be brave enough to maintain that cave as a pressing danger, or whether they will give in to Obama's pleas to seal it up. Republicans are worried about being blamed for new taxation, but Obama's tax increases are a golden opportunity to wake up our weary band of travelers and change course.
President Obama likes to talk about fair shares. Of the Federal taxes, about 50% of us pay none. Of the 50% who do pay, the top 16% pay about half of the taxes. This means 8% of us pay while 92% mooch. It gets even worse when we count handouts. We are a country of moochers fleecing the rich. The Federal government spends about $12,000 per person per year. For your family of four, did you and your spouse pay your $48,000 to Uncle Sam? If the poor and middle class pay more of their fair share for their slice of the pie, maybe they will demand a smaller pie. The Republican Party is the party of smaller pies, or so they claim.
But here is a real precipice: while the Obama taxes, mandates, and sequester are annoying, the Obama borrowing and printing spell doom. The Federal government is borrowing about 43% of the money it spends, roughly $1,500,000,000,000 every year, 10% of our GDP, and more than all the rich make, much less pay in taxes. If tightly stacked as a pile of dimes, it would be 5.6 million cubic meters, over twice the volume of The Great Pyramid of Giza, or just under 4 times the volume of the Willis (Sears) Tower. To put it simply, there is no way to borrow that much money; about half of it is printed from thin air. Before Obama, if everyone's debts were settled, there would have been $1.5 trillion dollars in circulation; now there is roughly $4.3 trillion. Did you notice how gasoline went from $1.80 to $3.90? The dollar is losing its value, fast.
Not only is the amount of borrowing insane, but with 10 year rates below 1%, the Treasury gives little incentive to lend money. In fact, with service charges and overhead, short term U.S. Treasury bonds are a guaranteed loss of principal. Using a 30 year repayment plan at 2.8% interest, this debt will require $790 billion per year, or about 5% of our GDP. That is 5% of everything you earn and 5% of everything you spend, just to pay Uncle Sam's current loan. The 2.8% rate also establishes a horrible economic baseline: it is simply not worth the trouble to lend money. Banks make no loans, people save no money, banks disappear and the economic system collapses, with absolutely no way to bail it out. The Democrats have a plan for our debt: pay it back with cheaper dollars. Under that plan, people will stop lending money to Uncle Sam and we will see double digit inflation, but with low interest rates, there will be no means to increase our paychecks. Everything becomes expensive and everyone becomes poor.
The debt cliff is not our predestined route. We might walk and tumble along it, but Obama is not in charge of it; Congress is. The continuing resolutions of Nancy Pelosi's One Hundred and Eleventh Congress are finally over, and Republicans can, for the first time since 2007, truly control the purse strings.
The ideal solution is for Obama, the Democrats and Republicans to sit down and work out massive spending cuts and a real budget. This will never happen. Ludicrous spending, confiscatory taxes, inflation, and printing money have long been promoted by communists as ways to collapse a free society into a communist society. Obama will do everything he can to go over the cliff.
The Republicans need to force two very difficult course corrections. The first is to make sure that everyone feels the folly of Obama. Republicans must avoid the temptation to cut taxes for the poor and middle class while taxing the investing class. It makes little sense to grow demand while crushing supply. That leads to inflation. It will be best for everyone if taxes move uniformly. The second is to play serious hardball with the debt ceiling.
Expect Obama and his propagandists to throw a tantrum. Government shutdowns may be in order, but Obama cannot spend it if Congress does not grant it, and we are very close to that cliff.