In this journal entry I will explain that the so called 'Fiscal Cliff' is actually something positive for USA economy and that avoiding it is part of the problem and that the solution that the government is looking for is fake. I will explain that the real cliff that USA has to be worried about is not the 'Fiscal Cliff', which in fact should be much bigger, it's not a cliff, it's a tiny bump in the road, but the real cliff that USA is moving towards is the debt and currency crisis. 'Fiscal Cliff' is part of a solution, it's not a problem itself. I will also show that 'Debt Ceiling' is fake (everybody knows that part), but also that the rhetoric surrounding 'Debt Ceiling' is completely misleading and the words that come out of mouths of politicians, such as Obama and supposed 'mainstream economists' are the exact opposite of the truth.
Just like the 'Fiscal Cliff' thing that isn't going anywhere, the 'Debt Ceiling' is also a topic for discussion. What is 'Fiscal Cliff'? It is a deal that the US government supposedly brokered with the rating agencies to prevent them from lowering USA credit rating. The deal is to cut some spending and to raise some revenue in order to reduce overall deficit and debt. Of-course a real rating agency (Egan Jones) wasn't swayed by that nonsense and lowered US credit rating a number of times and is sued by SEC.
What is the problem? The problem is that at some point any credit rating agency has to lower credit standing of an individual or a company or a country that cannot pay its bills and lives on perpetual credit. Your credit risk is measured and presented to potential debt buyers (creditors), that's the point of a credit agency. The credit agencies that did not yet lower USA credit are in bed with the USA government, they are in fact licensed by USA government, the moment they don't play ball they will feel the entire wrath of USA government upon them.
Playing ball in this case means keeping the score artificially high. USA credit score is in reality junk. USA is a deadbeat debtor, it is a terrible credit risk, it cannot repay its debts. That's precisely the words that come out of USA politician and so called economist collective mouths, they are all repeating this same nonsense:
If USA cannot get into more debt, it will default on its payments.
That is pure nonsense. Today USA only has to shell out 360 Billion USD in interest payments per year to not default on its interest payment obligations. This is not about repaying the creditors at all, this has nothing to do with the principal, the USA government promises to default on the minimal interest payments to its creditors if it can't raise more debt. But these words by USA politicians are extremely dangerous, they are the proof that USA has no intention of ever repaying that debt, not even making the minimum yearly payment that it can absolutely pay out of its tax revenues.
USA is a deadbeat debtor and every politician in USA and every so called 'mainstream economist' says exactly that every time they open their mouth to tell the world that if USA cannot raise more debt it won't make the 360 Billion USD interest payment for the year!
But I want to show you that the fact is that USA can make its yearly interest payment with just the revenues that it collects from taxes, that the real reason people like Obama talk about default has nothing at all to do with the minimum yearly interest payment, it has everything to do with the fact that US of A is completely broke, it's bankrupt, its Treasury is bare and its financial obligations cannot be met.
Consider these numbers for the year 2013:
1. The total tax revenues for USA Federal government are 2.46 Trillion USD.
2. The total expenses for USA Federal government are 3.8 Trillion USD.
3. The interest payment on the outstanding public debt that is on the books is at least 360 Billion USD for the year based on the interest rate (which is manipulated by Federal reserve and other banks, but that's a separate subject matter).
4. Social Security benefit payouts are budgeted as 882.7 Billion USD.
5. Medicare for the year is budgeted at 523 Billion USD.
6. Medicaid for the year is budgeted at 283 Billion USD.
7. Other mandatory programs for the year is budgeted at 654 Billion USD.
8. War will cost 525.4 Billion USD.
Add it up, that's 2.868 Trillion USD
That is not even everything, there is other spending, discretionary spending, etc., which is another 932 Billion USD (difference between 3.8 Trillion and 2.868 Trillion).
So the total revenues are 2.46 Trillion USD, total expenses are 3.8 Trillion USD, the interes payment is 360 Billion USD. If you get rid of the interest payment from both sides, that leaves about 2.1 Billion in revenues and 3.4 Billion in spending. This already means that there is a gap of 1.3 Trillion USD between revenues and expenses.
That gap of 1.3 Trillion USD is what the entire fake 'Debt Ceiling' crisis is about. Why is it fake? Because it will be raised, there is no question about it, the government will raise its own debt ceiling. The government will not be stopped by artificial lending limits imposed by itself upon itself (the debt ceiling idea was introduced in 1917, at the same time as the Federal reserve was given the green light to monetise US Treasury debt, the debt ceiling was there to prevent overspending by government, but USA government never failed to raise it every time it hit it).
To expect government to impose its own debt ceiling upon its spending is precisely like expecting an alcoholic to impose his own drinking limit upon himself or a drug addict to impose a drug limit for himself. It can't happen, it won't happen, just like in cases of the alcoholic and the drug addict, the debt ceiling will be a hard one, imposed by the reality, by the creditors. Once Chinese stop subsidising USA consumption with its production and absorption of USA created inflation, then USA will no longer be able to get into more debt, nobody will give USA the opportunity. That's when the real CRISIS will hit, when USA has nothing to consume. Americans believe they have a new type of economy, they call it 'consumption based economy', well there is no such thing.
There no consumption based economy, there is no service economy, there is no difference between the pre-industrial and post-industrial economies. The only thing that keeps such a thing going is the wealth that was accrued over the productive years and the inertia of the world that can't actually come to terms with the fact that its debts will never be repaid, USA cannot repay them.
Now, why can't USA repay the debts? Are the people wrong when they say that what is needed is economic recovery and then things will get better? Yes, they are wrong. There is no recovery, there can be no recovery, there will be no recovery. The reason for that is that to have a recovery USA has to experience deleveraging first. The bad debts have to be written off, the companies must go bankrupt, banks must fail (and they will, they are part of the money laundering operation in USA, which pumps fake money in form of new credit from the Fed to the commercial banks to the Treasury and the commercial banks make the arbitrage between the fake 0% interest rate on the Fed's loans and the fake 2-3% Treasury interest rates for 10, 20, 30 year bonds).
Until the bad debts are written off, until the failed companies fail and release the scarce resources that they are still occupying, until the government stops pumping liquidity into the market to try and inflate the credit bubble out of the recession again (this time it's the bond and the dollar bubble), there can be no economic recovery. That's why we know that there will be a real crisis, the sovereign debt crisis in USA and the dollar crisis that will come with it, because US Treasury bonds are the same thing as US dollars. They are a promise to be paid USD in the future, there is no difference between dollars and bonds.
I hope it is now clear to the readers that what is actually happening with the fake 'Fiscal Cliff' and the fake 'Debt Ceiling' crises is actually a political game that will be played until there is a real monetary collapse in USA. USA is already in an economic collapse, but it does not have to go through the monetary collapse, it chooses to go through it. Why do I say that? Because of the fake 'solutions' that the government and the people apparently want to implement to these fake 'crises'. Their solutions are not solutions, their solutions are equivalent to a person driving a run away car on a road to an actual cliff and instead of trying to break, instead of turning, even instead of jumping out of the car, the driver just closes his eyes and pushes the pedal to the metal while keeping the same direction!
I think the road that USA is taking is economic and societal suicide. USA just cannot admit that SS, Medicare, Medicaid, War, other 'mandatory' and 'discretionary' spending that it wants to keep should be cut drastically in order just to slow down the real collapse that is coming. Actually what really has to be done is shutting down most of the government offices, abandoning the ideas of SS, Medicare, Medicaid, Wars and most other government practices and activities, getting rid of most of business regulations, getting rid of the income related taxes, payroll taxes, Medicare taxes, all labour related laws, etc., and allowing the failed businesses to fail, allowing the failed government structures to fail, allowing the failed people to fail.
That's the only way to stop that car and actually turn back going away from the edge of the cliff.
Notice that the cliff I am talking about is the debt and currency crises, not the fake 'Fiscal Cliff' and 'Debt Ceiling' crises.
When Obama says:
"We must pay our debts, we must borrow more money to do it", what he actually says is this:
We cannot pay out obligations, not the 360 Billion, but SS, Medicare, Medicaid, Wars, etc.
In reality getting more debt means not paying obligations.
Not getting more debt means actually paying obligations (but of-course I am talking about obligations to the bond holders, not the SS, Medicare, Wars, etc., that stuff cannot be paid without more debt).
When I say that 'Fiscal Cliff' is fake, I am addressing the actual topic of debt that USA collects, and I am showing that USA will vote to raise its fake debt ceiling and that whatever measures that POTUS and the government were supposed to take in the deal with the credit rating agencies will not be taken. There will be no measures, the spending will increase, the debt ceiling will grow and the so called 'Fiscal Cliff' will be averted. When I say: 'Fiscal Cliff' is fake, I am saying that the government (and the public) already know that they will avert it.
The truth is that USA needs to hit the 'Fiscal Cliff', hitting it actually means starting to slow down that car that is moving towards the edge of the real cliff, of the debt and currency crises cliff.
The 'Fiscal Cliff' as it stands is nowhere near enough to stop the car, but it would cause a slight slowdown of the car moving towards the real cliff. Unfortunately for USA the fiscal cliff is not a cliff at all, it's a slight bump in the road, it's not going stop the car falling off the edge of the real cliff that is coming (the bond and dollar collapse, the currency crisis to go with the economic crisis that USA is in now and which will become much worse than anybody can even imagine today).
USA needs the fiscal cliff, it has to be a much bigger fiscal cliff, but USA will not hit it, it will 'solve' it, and that solution is the problem, that solution coupled with raising the fake 'Debt Ceiling' means closing your eyes while pushing the pedal to the metal and keeping the direction towards the edge of the real cliff.
The remaining idea I would like to address is the idea that USA spending is not a problem that USA federal government is not getting enough revenue. If you believe that it is the case then realise that effective taxes have to go up to cover the 1.3Trillion dollar difference between the current revenues and expenses, and since the current revenues are about 2.4Trillion and expenses are 3.7Trillion, the 1.3Trillion means an effective raise of about 54% in taxes on every person.
Does anybody think that it is possible to raise effective taxes in USA by 54%? An attempt to raise effective taxes upon everybody by 54% will cause a complete shutdown of most (if not all) economic activity in the country. Obviously the wealthy are already bearing a disproportionate tax load and they are moving their productivity elsewhere and the middle class and the poor would be crashed if their taxes went up that way.
So in reality it is the spending that needs to be cut minimum by that much in order actually to stop the car from falling off the edge of the real cliff.