America’s Dance at the Edge of the Fiscal Cliff

Every once in a while each one of us sits down with pencil and paper to go over our budget. We are determined to make sure that our expenses can be covered by our income. If it is discovered that we might be operating in the red we panic mode sets in. We look for ways to close the budget gap. Businesses go through the same process but on a larger and more technical scale. The universal quest is to have a balanced budget. After the financial crisis of 2007-2008 no one wants to finance their budgets by taking on more and more credit. Money borrowed must be repaid with interest. Substantial interest payments can break any well thought out and controlled budget.

Unfortunately the Eurozone nations (EZ) and to a lesser degree the United States find themselves struggling with a sovereign debt issue. The European financial bloc has struggled for the past two years to bring its member nation’s national debt down to sustainable levels. The EZ has had to bail out the economies of Greece, Portugal and Iceland to prevent their economies from collapsing. Politicians, financial organizations, experts and an assortment of pundits have debated the appropriateness of stimulation packages versus austerity measures. Spending more money to stimulate an economy is politically popular but, in the end, might exacerbate the debt problem. Austerity measures are designed to cut back governmental spending and lessen its role in supporting the economy. Because austerity normally leads to drastic changes in the standard of living residents have taken the European streets to protest the hardships that go with drastic reductions in governmental spending. On November 8, 2012 the Greek parliament again approved a series of austerity measures which legislators hope will entitle the nation to continued bailout funds. The debate of the measures and their final approval was greeted by street protests and wild-cat strikes. Austerity measures have often provoked massive protests and civil unrest. For the time being it seems that Greece will continue as a member the EZ.

The contentious U.S. presidential election is finally over. Most Americans are happy that they will no longer be bombarded with campaign ads loaded with political rhetoric that the candidates have not intention of adhering to. President Obama won reelection and he deserves to be congratulated.

Before November 6, 2012 it was generally agreed that budget woes awaited the winner of the election.  An excellent piece appeared in the Atlanta Daily World about the problems the winner would face. Last year Congress passed the Budget Control Act of 2011 (Budget Act) which was signed by President Obama. The Budget Act was a response to the political debate surrounding the need to continuously raise the nation’s debt ceiling. Treasury Secretary Tim Geithner told CNN that a deal had to be reached. He argued that America’s faith and credit should not be held hostage to politics. Experts had predicted that if the debt ceiling was not raised there would be higher interests rates, home values would sink even lower, the stock markets would lose much of their value and a half of million jobs would be lost.

Last year it seemed like there was universal support for raising the nation’s debt limit. There was much disagreement on the terms and condition for raising it. Because Congress was not able to agree on a permanent solution to the U.S.’s growing sovereign debt problem the nation’s legislators agreed to sever cuts in various programs, impose spending caps, increasing debt ceilings and to allow certain tax exemptions to expire. These automatic measures are to take effect on January 1, 2013 if no further legislative compromise can be reached.

The legislation also established the “Super-Committee.” This is a 12 man committee with 3 members from each party and each chamber of Congress. This group was tasked with cutting the deficit by $1.2 trillion over the next ten years. If deficit cutting legislation is passed the President could again borrow more money. Importantly Congress cannot amend or filibuster any plan; it can only approve or reject it. The committee has met and considered the options. Unfortunately for the nation the members are evenly split on their proposals and thus no plan has been sent to Congress. This impasse and the impending cuts and caps have been termed the “fiscal cliff .”

It is fair to accuse both major political parties of playing politics when it comes to raising the debt limit. When Congress is in Republican hands they tend to pass legislation that raises America’s borrowing ceiling while the Democrats oppose it. When the Democrats control Congress they support legislation to raise the debt ceiling while the Republicans take a contrary position. The political debate surrounding the consideration of the Budget Act showed a shifting of political position of the parties, albeit some of their members had a clear understanding of the problem. Because the national debt is so large the interest payments are astronomical. The nation is continuing raising the debt ceiling to borrow more and more money to pay the interest due on the staggering debt. Some of the newer Republican members of the House of Representatives refused to follow the Party’s leadership and voted against the Budget Act. They did not believe that the debt ceiling should be raised without legislation that would greatly and permanently reduce

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