Beware, the fiscal cliff!

Matson Fiscal Slope

Since the end of the election, political pundits all across America have been buzzing about the dreaded “Fiscal Cliff.” There is a sense of panic in the air, and even among American households, the fiscal cliff has quickly become a primary concern. However, many of us have seen trouble coming for a long time. In fact, Congressman Ron Paul says we’re already there. “We have to prepare for having already fallen off the fiscal cliff,” he said last week. So if we all saw it coming, why the sudden panic? And is it really all that bad?

The fiscal cliff is not so much of an unforeseen cliff waiting for us to fall from, as it is a downward sloping hill that we’ve been strolling down for years. It is predicted to be the result of two events that will happen on December 31, 2012: the end of tax cuts, and the beginning of spending cuts. Forbes sums it up quite well:

Barring any Congressional action, a series of tax increases and spending cuts will begin Jan. 1. Observers have named that series of monetary policy actions as the fiscal cliff because it would send a shock through the U.S. economy. A number of tax cuts would expire, including several that lower income and payroll taxes and limit the alternative minimum tax. Some 90% of Americans would see their taxes rise. Just as significantly, large amounts would be slashed from the government budget. This would, for example, reduce spending on defense and lower some government benefits.

So is all of this reason to panic? Not really. This situation is the result of poor monetary policy by our elected officials and the Federal Reserve, and they’ve seen it coming for a long time. In fact, Fed Chairman Ben Bernanke was the first to re-introduce the term into American lingo in February of 2012, long before it reached its current status of “Apocalyptic political catch phrase.” There are broad-reaching implications if a deal is not met, such as heightened unemployment due to the end of tax cuts for employers, but this isn’t likely.

Just as with the debt ceiling crisis of 2011, America will be in a constant state of terror for the next six weeks. Reminiscent of last year’s debt ceiling crisis, the proposed solution to this stand-off is a deal between Congress and President Obama. Republicans vs. Democrats is how it is being played out in the media. There are many who even say that we shouldn’t do anything at all, and let it happen in order to allow recovery for an economy that is on life support in the form of bailouts and the printing of money. However, our pandering representatives are far more likely to strike a deal, although not one with effective long-term results.

Congressman Ron Paul predicts that any solution will be ineffective. “I think there will be something,” he says, “but it will be very temporary, it won’t be long lasting and restore confidence and fix the problem.” Indeed, whatever last-minute deal is struck will fail to fix the problem, and will only postpone the situation just long enough for most to feel temporary relief. Many won’t even notice again until the next big political showdown.

Meanwhile, America will continue our stroll further down that hill that is now known as the fiscal cliff. Keep an ear out for those lone voices who will be speaking up about this in the near future.

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