It is a date early next year at which the debt ceiling is reached. At this moment the government will no longer be able to spend more money than it collects in revenue. A law was passed last year prohibiting the government from raising the debt ceiling without authorization from Congress. So when it is reached, the new law will automatically require all government expenditures to be reduced by an arithmetic formula, in order to balance the budget. This is not as easy as it sounds (and it doesn't sound very easy) because much of government expenditures are contractually mandated, such as payments to health care providers for Medicare services, as just one really large example. For the government to not pay its bills in full would be a breach of contract, and no one would ever trust them in the future.
What you are referring to is The Budget Control Act of 2011 that was passed last year and required automatic spending cuts if a congressional super committee could not agree upon a deficit reduction plan. Obviously the super committee failed so now the mandatory and draconian budget cuts embedded in the Budget Control Act will become mandatory in 2013 if Congress does not change the law.
This Fiscal Cliff is much more than just the Budget Control Act of 2011. The fiscal cliff is a term first coined by Fed Chairman Bernanke and refers to a series of laws that hit the economy at the same time.
- Debt Ceiling Increase
- Expiration of the Bush Tax Cuts
- Expiration of the Payroll Tax Roll Backs
- Expiration of Medicare Doc Fix
- Reversion of the Alternative Minimum Tax to 2000 Levels
- Expiration of Federal Unemployment Benefits
- New taxes
- The Budget Control Act of 2011
So basically, middle class taxpayers are going to get hit with significant tax increases coupled with significant decreases in government spending, none of which is good for the economy. Failure to increase the debt ceiling would cause an unprecedented national default in rather short order. It should be noted here that President Obama has already reduced the federal deficit by 600 billion dollars over the course of the last 3 years. But the federal deficit remains high at 1.1 trillion dollars.
http://en.wikipedia.org/wiki/United_States_fiscal_cliff
Neither. In the short run, only Congress can do it by raising the debt ceiling. In the long run both Congress and the President will have to find a way to balance the budget by reducing expenditures and/or increasing taxes.
As previously stated, this is something created by congress and can only be fixed by congress. Under our Constitution, Congress controls the nation’s purse strings. A president cannot make law, making law is the responsibility and duty of Congress.
Republicans in the House and Senate have repeatedly attempted to shirk their responsibility for the budget and shift it to the president. But the Constitution has not changed; congress is responsible for passing a budget and is the only body with the legal authority to authorize federal spending (i.e. budget) and make law. That is why Congress is referred to as the legislative branch of government. The president can veto the budget, in which case Congress has two alternatives. It can change the budget/law or override the president’s veto.
Raising taxes on the wealthy won't really solve the problem, much as everyone wishes it were that easy. There's just not enough potential revenue there, even if you raised them back to their 1950s level. They'll have to raise taxes on everybody, including corporate taxes.
This is an argument used by conservatives to justify exempting the wealthy from increases in taxation. The facts are that everyone will need to make some sacrifices in order to fix the nation’s fiscal ills. But we need to fix the fiscal woes in a way that will not damage the economy. We don’t need or want to repeat the same failed European austerity policies. Taxes on the wealthy are an integral part of solving the nation’s fiscal woes. And per the recently released study by the nonpartisan Congressional Research Service, there is no evidence that increased taxation on the wealthy will have any detrimental effects on the economy.
A rational solution to the nation’s fiscal problems must first ensure that the economy continues to grow. Our fiscal problems are long term, not near term unless we screw things up with European style austerity or fail to raise the debt ceiling.
You can bet that this country will finally start looking at its sacred cows, like the fact that churches pay ZERO taxes, even though they run some very lucrative businesses. It's time to stop paying subsidies to (mostly corporate) tobacco farms, at the same time we're paying for advertisements urging people to stop smoking. There are lots of things like that in the tax code, and they really add up to a lot of money.
I have to agree with you here.
As for cutting the military budget, of course I support that because I'm a pacifist. We've spent several trillion dollars on wars during this century, and they have been ENTIRELY wars of opportunity. Somehow Obama gets the blame for the national debt, when it was Backward Baby Bush who decided to fight all these wars without paying for them, simply borrowing the money from China. Maybe he figured eventually we'd just make war on China so we wouldn't have to pay them back, I don't know. It's hard to read the mind of a person with pre-senile dementia.
Anyway, much as this senior citizen hates to admit it, Social Security, Medicare and other expenditures for retirees is a much larger part of the budget than the military. And it's growing every year, with the greying of the population. Sure we could simply reduce the benefits to my generation, but remember that we all vote and most of you are too busy, lazy or apathetic to bother, so you'd never get that law passed. What we need is to reduce the cost of health care, which is as much as double the European level, and health care in Europe is just as good as ours if not better in some cases.
The total cost of health care in the USA is nearly three trillion dollars! If our health care industry were a separate country, it would have the world's fifth largest economy.
I have to agree with you up to this point.
Our health care costs are inflated by a phenomenon I often rail against: the lawyer glut. There are too many attorneys in America so when anything bad happens to anybody, they show up in their hospital room and convince them to sue someone, anyone, everyone. As a result our doctors practice "defensive medicine," and order thousands of dollars of expensive tests before performing surgery, so if something goes wrong nobody can say they cut corners. This is why medical care is so expensive in the USA. It isn't the doctors and nurses and orderlies and hospital janitors making all that money: it's the lawyers and bureaucrats.
It really is time for America to take Shakespeare's advice: First kill all the lawyers.
That's an awful lot of money. It simply can't be done quickly. We have to balance the budget by... what's the date now, March? There's no way we could pay off half of our national debt in four months. Too many creditors, too many accounts, too much work for too many people.
The problem is not lawyers. The nonpartisan Congressional Budget Office did a study a few years ago and found that at best, legal fees account for no more than 5% of the nation’s healthcare expenditures. The real problem with the US healthcare system is lack of competition. Industry insiders control prices by controlling supply. They don’t have to compete based on price, so they don’t. A single payer system as we see in Canada and in other industrial nations is a much more efficient and effective model. But the single payer model is an anathema to Republicans.
In the short run the problem won't be solved until the national debt is down below 80% of GDP, and right now it's way over 100%. Different economists give different numbers, but it absolutely can't be much higher than 80% in the long run because so much of our productivity will be spent on interest that the economy will go into a tailspin.
In the long run the problem won't be solved until the national debt is way down below 50%. That will give us plenty of leeway for deficit spending if a disaster strikes, while still leaving plenty of U.S. government bonds out there for banks to buy as safe assets.
This is all nonsense. What is important is the nation’s ability to service its debt. There is no arbitrary number out there that says a nation cannot have more than “x” amount of debt. Currently the US has no problem servicing its debt. Longer term, when the economy recovers and interest rates rise, servicing the debt may become more problematic. But federal tax revenues should increase with economic expansion. What is important is that investors feel that the existing government can govern. That was not all that apparent last year when the Tea Party threatened to cause an intention default on the national debt.
In the past the U.S. has had much higher levels of real debt (e.g. WWII) that was brought under control by raising taxes and continued investment in infrastructure - the exact same plan President Obama has and continues to advocate.
That would cause catastrophic inflation. Remember Germany in the 1920s? Eventually they had postage stamps denominated in billions of deutschemarks. It would destroy the country. Everyone would be hoarding gold.
First, it would not be like post WWI Germany with hyperinflation. Germany didn’t have a central banking system for starters. And two, the effect of monetary expansion on inflation depends on timing – when and how fast the monetary supply is allowed to expand. Nations are not constrained by human life spans.
It has its own central bank. That's the problem with the Euro zone. They have a common currency but no central bank for the entire union. That was a really dumb idea and they now realize it. Each country is allowed to craft their own economic policy, and when they go in opposite directions it causes chaos.
Well that is not true, the European Monetary Union does have a central bank and its president is Mario Draghi. President Draghi has frequently been in the news this year, most recently a few days ago when he announced that European economies were contracting and subsequently resulted in a several hundred point decline in the US equity markets. What the EU does not have is a strong central government and they have taken steps to strengthen their central government this year. But they have been slow in enacting reforms. Greece does not have a central bank. Greece like other EMU member states signed away its right to control monetary policy when it joined the EMU (European Monetary Union) and is totally dependent on the EMU central bank for monetary policy.
http://www.ecb.int/home/html/index.en.html
I think you are confusing monetary policy (i.e. the money supply/creation or destruction) with fiscal policy (i.e. how money is collected and spent). And for a man who is supposed to have a degree in business I find that rather odd. Central banks like the European Central Bank (ECB) are responsible for monetary policy and only monetary policy. And Saint’s question was about central banks and monetary policy.
Each member EU state is responsible for its own fiscal policy (i.e. spending & budgeting) just like each state of the United States sets its own budget, borrowing money, raising revenues and spending money. Greece is now comparable to any of the states of The United States. Colorado cannot print money. It cannot control the money supply and neither can Greece. Only the federal government (i.e. The Fed) can create money in the United States. And only the ECB can create or destroy money in European Union (United Kingdom exempted, they retain the British Sterling). Colorado, like every other state in the union, is totally dependent on the federal government to manage monetary policy. Colorado, like every other state in the union, raises revenues through debt and taxation and spends those revenues, and so it is with Greece and other member EU states.
Here is a difference, it is clear Colorado doesn’t have the right to leave the union and there are processes/laws for managing a profligate state. Wither Greece can leave the EU is much less clear. In the EMU (European Montetary Union) there are no processes for undoing the European Union or managing a profligate state. And that has been the locus of much angst in recent years.
