Fiscal cliff: What should Congress do?

by Bill on April 30, 2012

As I read through the news feeds this morning an article from CNN/Money caught my eye.

Fiscal cliff: What should Congress do? – Apr. 30, 2012.

Once again our US Congress may show how financially ignorant they are.

Here’s the basic gist of the story – Ben Bernanke, the guy who runs the Federal Reserve, has officially told Congress and the world that we are economically worse than everyone thought. When you tell lawmakers that there is a $7 trillion financial and economic cliff approaching that amounts to a little more than Willie E. Coyote going over the cliff chasing the Road Runner. We are in serious danger.

For those who haven’t been watching, Europe (mainly Greece and Spain lately) has been on the edge of a repeat of 2008. My opinion – we’re not far behind.

Here’s the exact wording from Bernanke from CNN:

“[I]f no action were to be taken, the size of the fiscal cliff is such that there’s I think absolutely no chance that the Federal Reserve… could or would have any ability whatsoever to offset … that effect on the economy,” Bernanke said.

See somehow the Congress set up scheduled tax hikes and spending cuts that, when put into effect by the end of this year, kill the recovering economy in 2013. But, if they cancel all of it they nearly double the debt over 10 years and we end up with downgrades in credit like Spain and Greece (basically junk bond status).

People who watch these things think tax cuts will be extended and the spending cuts postponed. The problem is this has to be done before New Year’s Eve. Why is that a problem? November is also when we elect the President and Congress; so there’s a big reality that this will just get stalled until after that happens making it “someone else’s” problem. And we then only have like seven weeks to save the economy again. Add to that the fact that lawmakers “have to” have their Thanksgiving and Christmas breaks which take at least a week or two out of the remaining seven.

Add to that the yearly budget fight which starts from now until October when it takes effect, and the debt ceiling will be hit again right about the same time. So expect a nice fight on that as well.

A smart idea suggested to get us through to the end of next year comes from budget expert Stan Collender:

  • extend tax cuts and delay spending cuts
  • increase the debt ceiling
  • pass a continuing resolution to pay for the government

 

No its not perfect, but it would get us passed the whole damn election year fight and the chance for the US to not do something stupid.

William Swan, writer

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