Isn’t this “fiscal cliff” stuff a lot of fun?
It has turned Washington into the betting capital of the world. Erskine Bowles, a Democrat who co-chaired the National Commission on Fiscal Responsibility and Reform, said over the weekend that he thinks there’s a 40 percent chance that a fiscal cliff deal will be reached by the end of the year.
That’s what is considered optimism in Washington these days.
But Bowles also predicts there’s a 35 percent chance of going over the cliff, which would trigger $600 billion in automatic government spending cuts and tax increases. And he thinks there’s a 25 percent likelihood that a deal will be worked out just after the New Year.
Yup, that adds up to 100 percent. So Bowles does know his math.
My own opinion: I think there’s a 100 percent chance that either a deal will be reached or the stock market will crash. The stock market will look the other way if the deal turns out to be full of accounting gimmicks, like the proposed idea for the government to cheat people on cost-of-living adjustments by calculating inflation differently.
If there’s no deal, the bond market — which is in the biggest bubble of all time — may also collapse, which would send interest rates higher. And if rates do climb, all the hard work done by Congress could be wiped out.
(It’s difficult to express sarcasm in a column like this — which is always sarcastic — so let me say straight out, that last sentence was dripping with it.)
I also think there’s a 20 percent chance that 30 percent of the wealthiest 1 percent of Americans will move to islands in the Pacific if tax rates go up substantially.
The best way to force the Democrats and Republicans to cooperate, of course, would be for the stock market to tank. I’d bet it would take exactly one hour for negotiations to start in earnest in the event of a crash. That’s just enough time for our elected officials to go home and put on clean underwear after they realize the damage they’ve done.
The Federal Reserve, of course, is trying to keep the stock market from crashing. So, in a way, the Fed — while urging Congress and the president to come to a fiscal cliff agreement — is hindering that deal by not allowing stocks to protest with a crash.
The Fed’s governing committee, as you probably know, meets again this week and will do absolutely nothing to scare people. It will say the economy is doing swell and that, if things change, it will toss buckets full of money around to get it back to swell.
The funny part of all this (and please hold your laughter until the end) is that despite all this chatter coming out of Washington, there is one undeniable truth: The US already went over the fiscal cliff a long time ago.
The national debt is now past $16 trillion, with about $1 trillion of that held by the Chinese investors who — as you probably know — don’t always like us. The Fed has had to buy $3 trillion of our debt in recent years in an effort to keep our borrowing costs low enough so that, among other things, Washington’s interest tab on that $16 trillion in debt doesn’t eat our economy alive.
Then there’s Social Security, which is only about a decade from reaching its fiscal cliff, not to mention the problems of entitlements like Medicare and the additional expenses that President Obama’s completely humane, financially foolish health care program will inflict on the country.
We still have cliffs in housing and student debt. And while credit card debt may have avoided going off the deep end for now, a slowdown in the economy could send a lot of people’s finances toward a brick wall.
Let’s call all that other stuff the “financial abyss” and forget about it for a while.
The fiscal cliff — the one we reach on Monday, Dec. 31 — is the topic of the moment, so let me get back to it by putting things in perspective.
Even as they bicker, the Democrats and Republicans are talking about spending reductions and tax increases that amount to — depending on the latest rumor — only $1.5 trillion to $2.4 trillion or so over a 10-year period.
It will be great if our leaders come to some sort of agreement before they destroy the country. But $150 billion in savings a year — even if it is genuine cuts and tax increases — is minuscule when the annual US budget deficit is consistently more than $1 trillion.
Only a decade or so ago, $250 billion was considered an outrageously large annual deficit.
And if the current “fiscal cliff” budget talks create enough panic, the economy could slow down, as it seems to have already. The loss of tax revenues during another recession could make the $150 billion annual savings disappear.
Fiscal cliff, higher taxes, economic slowdown — those are the thoughts going through people’s minds this holiday season as they shop. What are the chances those worries and the lack of good news from Washington aren’t going to make people shorten their Christmas shopping lists, alter their vacation plans for next year and change home-buying intentions?
It’s pretty funny when you think about it. (Laugh now, if you’d like.)
I feel like I’m watching professional wrestling. Eventually someone is going to win the fiscal cliff battle and the other guy will lose. In the end, however, it doesn’t really matter because it’s just a farce.