# Fiscal cliff



## a_majoor (14 Dec 2012)

Hope for the best, but prepare for the worst. An outline of scenarios if/when the cliff is crossed. For real optomists you could start looking to when Social Security or Medicare goes into technical default (perhaps as early as 2016). The predicted unemployment figure is quite low, suggesting they are using the BLS figure rather than U3 (which counts all unemployed).

http://business.financialpost.com/2012/12/13/heres-the-fiscal-cliff-nightmare-scenario/



> *Here’s the fiscal cliff nightmare scenario*
> 
> Mamta Badkar and Max Nisen, Business Insider | Dec 13, 2012 11:35 AM ET
> 
> ...


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## Brad Sallows (15 Dec 2012)

I don't get all the lip-quivering.  All the temporary measures were just that - temporary.  Most should not have been undertaken in the first place.  Fiscal corrections have to be allowed to work through.  People have to be able to pay down their debts without being further indebted by governments.  If you spend future income "today", you have to accept less spending "tomorrow".

This is just the way the US economy is and will continue to be, given current policy preferences.  There isn't another dot-com bubble around the corner to provide an excuse for dim-witted partisans to pretend the president is a fiscal genius.  Democratic policies require much higher taxes on a much larger segment of the population than just "the rich".  The "fiscal cliff" isn't an extraordinary difficulty to be avoided; it is merely the next step towards higher public spending (thus higher taxation) necessary to support the "American liberal" project.  People - especially the "reality-based community" - need to stop fooling themselves about the implications of future entitlement promises.  Those unwilling to divert themselves from their self-indulgent lifestyles long enough to raise sizable broods of children either have to pay a lot more in right now, or accept an austere retirement.


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## a_majoor (15 Dec 2012)

Brad, while you are correct on all counts, the reality is ordinary people in the United States and throughout the world will be deeply affected by this, since the American political class seems determined to play "chicken" right to the end.

In some senses this would actually be a good thing; the sequestration would produce real spending cuts rather than the phantom ones that are either projected years into the future or are simply reduced spending increases. The short term fallout will be quite intense (as the opening post indicates) and Canada is in a particularly poor position, since we are essentially like a lifeboat tied to the Titanic. No matter how well the GoC manages the economy, if the US tanks there is little we can do to mitigate the negative effects. Consider how the American U3 of 11.2% affects us; an adult population of Americans equal to the entire population of Canada is in no position to spend money purchasing our goods and services, negatively affecting our export industries.

Still, taking the hit will allow long term recovery to finally take place; the fiscal crisis is at the bottom a debt crisis, and the effects we are seeing are mostly due to the various governments around the world frantically attempting to prevent deleveraging. In some respects this is a replay of the situation at the heart of the Great Depression; so many of the world's leading powers had gone deeply into debt in order to prosecute the Great War that there was an immense "overhang" of debt that needed to be cleared somehow. The solutions chosen in the 1930's had certain negative effects....


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## tomahawk6 (15 Dec 2012)

President Obama in his first 3 years or so in office spent $6 trillion. Rolling spending back to say $1 trillion would be a step in the right direction. Current Federal revenues are $2.3 Trillion.


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## Pieman (15 Dec 2012)

Cliff or no cliff, I've gotten off this sinking ship. 

Zero out debt, Pull investments (not that I had a lot to begin with), secure land ownership, transfer nest egg of money into precious metals (small bars of silver and gold). 

If she tanks, zero worries.


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## kevincanada (16 Dec 2012)

They'll probably extend the deadline if nothing is sorted out.  Even if it is or is not worked out or extended.  Come the new year they'll be back at it over the debt ceiling and a new set of $$$$ problems with that!


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## cupper (16 Dec 2012)

Extending the deadline won't resolve the biggest problem with the US Economy right now - Uncertainty.

Because Congress opted to keep kicking the can down the road, long term planning can't be done.

I think what is going to occur come January 2nd is that an agreement not having been reached, the debate will switch to cutting taxes on the middle class, restoring or nullifying the more economically damaging parts of the "fiscal long low slope" to avoid a recession.

One point to remember is that the majority of the measures such as income tax hikes won't be felt until year end 2013, providing a significant amount of time for Congress to piss away before finding a last minute solution on New Years Eve 2013. </ ironic but true sarcasm off >

Add to that rolling back immediately implemented measures could be made retroactive to Jan. 2nd.

But again this just puts us back to where we were on December 31st 2012. And without any additional certainty.


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## kevincanada (16 Dec 2012)

Same problem we had here before the Conservative Majority government,  opposition did anything to boot out the conservatives.  Same thing is happening in the states I believe.  Republicans control the House of Representatives.  If it was democratic party controlled, this fiscal cliff would of been already resolved.


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## a_majoor (17 Dec 2012)

kevincanada said:
			
		

> Same problem we had here before the Conservative Majority government,  opposition did anything to boot out the conservatives.  Same thing is happening in the states I believe.  Republicans control the House of Representatives.  If it was democratic party controlled, this fiscal cliff would of been already resolved.



Look at the spending record from the Democrats assuming a majority in the House and Senate in 2006 to the Republicans taking the House in the 2010 mid terms and try that again.


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## kevincanada (18 Dec 2012)

I'm not talking about numbers, I'm saying that proposal after proposal is shot down by the Republicans.  I'm not saying The democrats idea's are good or bad,  The tug of war has already caused a credit downgrade.  Even if Obama plan was horrible, if the house was democratic controlled the fiscal cliff would of already been dealt with.  It would of been voted through.


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## Brad Sallows (18 Dec 2012)

Not all proposals are of equal value.  I could enter a wage negotiation demanding an outlandish increase, but I should not expect it to be taken seriously or serve as one endpoint for splitting the difference.


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## tomahawk6 (18 Dec 2012)

Obama spent $6 trillion with no spending cuts. Now he wants to spend more money and spending cuts 10 years out. Obama isnt serious about cuts in entitlement programs. But he wants to raise taxes on millionaires. Look to France to see how that is working out.


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## ModlrMike (18 Dec 2012)

A BBC article to illustrate the point:

http://www.bbc.co.uk/news/world-europe-20760572



> There are some 2,800 French living in the same area of Belgium a few minutes' drive from the border, including the Mulliez family, owners of the French hypermarket chain Auchan and the Decathlon sports stores, who have lived there for years. Belgian residents do not pay capital gains tax on the sale of shares or wealth tax.


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## a_majoor (18 Dec 2012)

kevincanada said:
			
		

> I'm not talking about numbers, I'm saying that proposal after proposal is shot down by the Republicans Democrat Senate and President.



Fixed that for you


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## kevincanada (23 Dec 2012)

tomahawk6 said:
			
		

> Obama spent $6 trillion with no spending cuts. Now he wants to spend more money and spending cuts 10 years out. Obama isnt serious about cuts in entitlement programs. But he wants to raise taxes on millionaires. Look to France to see how that is working out.



Millionaires have been making request for higher taxes on themselves in the form of fixing loop holes and some willing to pay more.  It started with Warren Buffet.  More followed suite.  The issue wasn't so much higher taxes, as it is plugging the loop holes,  Buffet released his income tax statement, he paid something like 7% income tax,  He paid a lower margin than the working class.


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## kevincanada (23 Dec 2012)

Thucydides said:
			
		

> Fixed that for you



Let me fix yours, the public have spoken they want Obama, doesn't matter how much you or I may or may not agree with republicans.  It's a democracy, Majority voted for a Democrat.  You're stuck, live with it ;D


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## Sythen (23 Dec 2012)

kevincanada said:
			
		

> Let me fix yours, the public have spoken they want Obama, doesn't matter how much you or I may or may not agree with republicans.  It's a democracy, Majority voted for a Democrat.  You're stuck, live with it ;D



And this means that those Republicans who hold office should just do everything Obama wants? Doesn't matter that they were democratically elected and are expected to serve their constituents, right? Whatever King Obama decrees must come to pass, no matter how ridiculous or nonsensical it is! Where was this attitude when President Bush was in office?

Also in regards to millionaires asking for higher taxes.. Wonder what the percentages of them is? I'd imagine its very low, though I am not gonna do the actual research in to it.


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## Haletown (23 Dec 2012)

The tax the rich discussion is a pleasant diversion from reality that Obama will have all day because it diverts attention from the real problem.

The tax the rich scam might raise $80 billion a year in additional revenues.  

Obama has, in the first two months of the current fiscal year, run up deficit spending of $300 billion, en route to a new and staggering deficit closing in on $2 Trillion dollars.

Ignored by a sycophantic press corps that lick his boots, Obama can run the field with a spend, spend, spend, borrow, borrow, borrow program that is out of control, out of ideas and running out of fiscal room.


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## Edward Campbell (23 Dec 2012)

In an article with which I, mostly, disagree, Diane Francis of the _Financial Post_ describes a "grand bargin" which many Americans want: "higher taxes, cuts in government services and military downsizing while preserving Medicare and Social Security." My guess is that Francis is partly right and that the POTUS and Congress will:

1. Agree to something like this to avoid the fiscal cliff; and

2. Kick the can down the road to delay the inevitable which includes new, steeper tax increases ~ maybe through tax code reform, and *deep* spending cuts, including _reforms_ to social programmes and to defence procurement.

But, sooner rather than later, the fiscal realities will have to be faced by a president and a Congress who are, all, now, too cowardly to face the wrath of an _entitled_ America. This happened to us, although we had the luxury of doing it in relatively slow motion from about 1990 (when Mulroney balanced the operating budget but failed to attack the 'structural' deficit because he, too, was afraid of the reaction of e.g. seniors) until now ~ we are stil doing it by e.g. reforming OAS; it is happening, right now, to the Brits; Americans will, eventually, have to grow up and spit out the government pacifier on which they, as a nation, have been sucking since _circa_ 1935.

The basic point is that all modern, sophisticated, _civilized_ nations have and sustain social and medical programmes that aim to prevent catastrophic age or health related financial problems for almost everyone. America wants and needs to do the same ~ but America can only have those _civilized_ programmes by balancing its budgets (federal, state and local). Other countries - like Canada and Norway - can manage, so can the USA ... if Americans will let it.


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## ModlrMike (23 Dec 2012)

Maybe they could find some money by trimming Obamacare back to catastrophic coverage only. You need a couple of stitches = you pay, you need a tetanus shot = you pay, you need your arm sewn back on = insurance pays.

I don't think the US can manage truly universal coverage, hell we can't and we've been trying for 50 years.


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## Edward Campbell (23 Dec 2012)

I'm inclined to agree with ModlrMike. Medical insurance - which is what US _Medicare_ and Canada's health care plans are, really, all about - and ALL social programmes/entitlements ought to be "means tested:" those who can afford to pay a lot, those who can not afford anything pay nothing - most of us fall somewhere in the big, wide middle. That's what _Saint Tommy_ Douglas had in mind back around 1960.


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## Brad Sallows (23 Dec 2012)

The public have spoken they want a Republican House of Representatives, doesn't matter how much you or I may or may not agree with democrats.  It's a democracy, Majority voted for a Republican House.

The House is where taxation and spending authorization originates.  Democrats are winning the public relations war by misleading people too ill-informed or too partisan to think objectively that the Republicans are "stubborn"; but exhibit A in the Hall of Stubborn is Obama, who has fervently shackled himself to a taxation measure which not only is mathematically a metaphorical drop in the bucket, but is also one he has conceded is about "fairness" to which he will not or can not attach a hard number.  What is the exact taxation rate of "fair"?  That sticking point is what is holding everything up - his obsession that someone, somewhere, is making "more than enough money".  He is combative and inflexible, both of which are bad attributes in an executive.

Canada's operating balance was in surplus from 1987-88 through 08-09 inclusive - see the Fiscal Tables.  Debt was the near cause of ruin once; it can be the cause of ruin again.  The US now, unlike Canada then, has none of the same conditions (freedom of manoeuvre) for successful resolution of the problem: operating surplus, two major parties committed to spending control and debt reduction, unity of effort in the legislative/executive branches, high costs of debt gradually evolving to low costs of debt, large trading partner combined with FTA and weak currency.  They have prospects for tax reform (ours was the GST), but see again "unity of effort".


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## a_majoor (23 Dec 2012)

While a few high profile millionaires are advocating for higher taxes, it is interesting to see the actual behaviour of millionaires in practice.

In US States that instituted millionaire taxes, millionaires rapidly reorganized their fiscal affairs to stop being millionaires or packed their bags, leaving these States with lower tax revenues than before. This isn't unique to the US, raising tax rates in the UK and France has triggered the same behaviour and fiscal results there as well.

Even the ones who are part of the Democrat PR team are quite suspect; a few examples include John Kerry docking his yacht in Delaware to avoid higher taxes in Mass;  Jeffrey R. Immelt ensuring GE pays no US taxes while acting as a shrill for President Obama's economic policies or the very telling observation that Warren Buffet or other advocates of higher taxes refusing to write a cheque to the US Treasury department.

Why don't they put their money where their mouths are? Once you determine that, you will understand the true motivations behind the movement to increase taxes.


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## Fishbone Jones (23 Dec 2012)

And like Belgium, I'm sure we'd be more than happy to have all those disenfranchised US millionaires living in our border cities spending their money here instead. :nod:


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## Brad Sallows (26 Dec 2012)

I'd be happier if we could find some disenchanted Belgians to live here and make beer.


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## GAP (26 Dec 2012)

recceguy said:
			
		

> And like Belgium, I'm sure we'd be more than happy to have all those disenfranchised US millionaires living in our border cities spending their money here instead. :nod:



I don't see the US millionaires moving to rural border cities to avoid the taxes....the US requires all US citizens to file a US tax return each year, irrespective of where they are living.....ask the US cum Canadian citizens who are being asked to file 10, 15 sometimes 20 years of taxes...


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## Old Sweat (27 Dec 2012)

The Duffle Blog joins the debate with some bitter satire. It is reproduced under the Fair Dealing provision of the Copyright Act.


US Army Awarded Medal Of Honor After Jumping On Fiscal Grenade

1,529  |   27 December 2012  |  by Dirk Diggler 

THE PENTAGON – President Obama announced today that he would be awarding the Medal of Honor to the US Army for its “great sacrifice and courage in the face of a fiscal disaster,” according to an official statement.

This week, the US Army joined many past recipients of the nation’s highest award for bravery by jumping on a fiscal grenade, and having its budget blown apart.

A decade of protracted war, tax cuts, and reckless entitlement spending placed the US government on the precipice of a dreaded “fiscal cliff”. With lawmakers facing the challenge of cutting $1.2 trillion from the budget over the next ten years, it could have forced Americans to swallow a series of automatic tax increases and cuts to entitlement spending.

This would have forced the average American to make immense sacrifices in order to tackle the nation’s ever-mounting debt. Fortunately, the US Army leapt on the impending fiscal grenade, sparing Americans from the horror of sacrificing for the well-being of the nation.

But in doing so, the Army paid a heavy price: it was forced to accept massive budget cuts, and reduce the size of the Active-Duty Army to 430,000 soldiers. By fiscal year 2015, over 140,000 soldiers will be looking for a new line of work.

Nevertheless, the US Army’s noble sacrifice prevented Congress from having to reach an agreement, after months of heated talks.

Choking back crocodile tears, Senator John Kerry (D-MA) was grateful for the Army commitment to service.

“The US Army has tirelessly borne the brunt of war over the past decade,” said Kerry, “so if there’s anyone who has plenty of experience in the whole sacrifice department, it’s definitely them.”

Senator Kerry went on to thank the Army for its selfless service, but added, “It’s just, well, for 140,000 of you, your services are no longer required.” Kerry was unavailable for further comment, as he was preparing to spend New Year’s Eve at his mansion in the Cayman Islands, on which he pays no taxes.

The US Army’s heroic actions spared Americans from almost certain inconvenience. Americans can enjoy the gift of life, made even sweeter due to the fact that they now pay less in taxes than they did during the 1980s, and certainly less than nearly every industrialized country in the world.

“Let us not forget this day,” said House Speaker John Boehner, after the award was announced. “These heroics will always be remembered, until we screw up something else of course. The US Army gave up its budget so that others may live, off the government’s dime.”

The US Army’s actions not only saved everyday Americans the burden of higher taxes and cuts to popular government programs, but it also saved the lives of millions of defense programs.

General Mark A. Welsh III, Chief of Staff of the Air Force, released a statement saying, “Thanks to the US Army’s heroic sacrifice, we were able to buy three additional F-22 Raptors.”

“Never before have so many sacrificed for so little,” he added.

http://www.duffelblog.com/2012/12/us-army-awarded-medal-of-honor-after-jumping-on-fiscal-grenade/?utm_source=The+Duffel+Blog+Email+Newsletter&utm_campaign=e5b3ceaa9e-RSS_EMAIL_CAMPAIGN&utm_medium=email


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## Edward Campbell (27 Dec 2012)

This "fiscal cliff" issue might be President Obama's chance to repeat Roosevelt and Truman's 20 year dominance of US politics (1933-1952) when the Democrats were able to practice "retail politics" at its _best_ (or worst, depending upon one's economic inclination) and make the GOP nearly irrelevant in US public life.

Additionally, perhaps he honestly feels that:

1. Increased revenue is the _best_ way, politically best way in any event, to address the US deficit nightmare; and

2. US defence spending is out of control.

Assuming the convergence of that 'opportunity' and those leanings then maybe the pain - and there will be real, measurable, albeit short term pain - is a small price to pay for a decade or two during which Democrats can reshape America into something like France.


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## Brad Sallows (27 Dec 2012)

France's unemployment rate is also typically higher than that of the US.  I'm not sure how many hundreds of thousands of additional stressed and broken families that means are likely to be created in the US, but I'm sure it is a small price to pay for the progressive intelligentsia to feel a little bit better about itself.


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## krustyrl (27 Dec 2012)

This area of discussion is mostly out of my league but can someone tell me some possible impacts it may have on Canada and Canadians should the Fiscal Cliff be reached and fallen over.?


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## Edward Campbell (27 Dec 2012)

krustyrl said:
			
		

> This area of discussion is mostly out of my league but can someone tell me some possible impacts it may have on Canada and Canadians should the Fiscal Cliff be reached and fallen over.?




We sell a lot - good and services - to the USA, more that just oil. If the American economy goes back into recession - three successive quarters (nine months) of "negative growth,' which is a very real possibility, then they, American business, home builders and consumers will stop buying what we sell and we, Canadian businesses and workers, will lose markets and jobs. Will we, too, be pushed back into recession? Maybe, but more likely we will have one or two quarters of "negative growth" and then more slow growth.


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## krustyrl (27 Dec 2012)

Thank you ER for the insight.  My speculation wasn't too far off.


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## tomahawk6 (28 Dec 2012)

The US economy never recovered from the recession. Real unemployment numbers are double what they were under Bush. Obama ran up over $6 trillion in debt in his first term and now he is faced with the prospect of not being able to replicate that. He wants to go over the fiscal cliff because he believes that an economic collapse will set the stage for a communist USA.He wants to transform our country and he thinks going over the cliff will do that and he will blame the Republicans. Obama is clearly expecting the Republicans to cave. I hope they stick to their conservative beliefs or get a new Speaker in Jan.


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## Brad Sallows (28 Dec 2012)

He wants to transform the country, but I doubt to that extreme.  Democrats face the discouraging fact that the "temporary" measures undertaken to "successfully prevent a depression" are barely holding the economy in a state of weak growth.  Policies undertaken so far have failed to restore economic activity so that federal revenues climb back up to where they should be (following pre-2008 trend), and have also militated against growth and recovery (eg. misallocation of capital in the ARRA, costs of PPACA).

A logical plan (for Democrats) is to first seek higher tax rates, and then eliminate tax shelters and expenditures.  However, I see that they are now talking about permanently extending current rates for "non-rich" income levels.  I expected at some point they would realize they burned through all their fiscal freedom-of-manoeuvre in the past recession.  They have been able to play the "you propose a fix for the problem we created, subject to our demands" blame game with Republicans, but that time is at an end with the recent demonstration of where the floor of negotiations lies.  So: how do you remove "temporary" measures without slipping into recession, if the "temporary" measures are necessary simply to hold the economy where it is, let alone boost it to prior performance?


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## tomahawk6 (28 Dec 2012)

Boehner offered $800b in new revenue and the President turned him down.


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## cupper (28 Dec 2012)

tomahawk6 said:
			
		

> He wants to go over the fiscal cliff because he believes that an economic collapse will set the stage for a communist USA.



Channeling your inner McCarthy I see. Jenny would be so proud! ;D


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## cupper (28 Dec 2012)

Boehner is never going to get anything passed by his own conservative group that would pass in the Senate. They are too focused on keeping the locals calm so they don't face a primary challenge in the mid terms against a more conservative candidate.

And the likelyhood of something getting through the Senate for the House will depend on McConnell allowing it to move without a fillibuster. Slim to none, and slim is heading toward the door.

Everyone in Congress seems to be pushing as hard as they can to go over the cliff, as it suits their own agendas. GOP gets to reset the game by claiming that they are cutting taxes after the rates go up. Dems get the rates up on the top 2% or whatever while moving the rates back for the middle class (even if they only go back a a percentage point). The cuts can be reduced or reworked to be more planned and reasonable, and all the othe rshort term pain can be resolved retroactively.

BUT... it never had to get to this point if everyone would have just STFU, sat down and NEGOTIATED like they used to when we had more moderate members in both the House and Senate who could bargain with the opposition, as it should always be, give and take.

Want to cut the deficit and the Debt, fire Congress. They are the problem. And are definitely not the solution.


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## cupper (28 Dec 2012)

Now where did they hide my meds?


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## Fishbone Jones (29 Dec 2012)

cupper said:
			
		

> Now where did they hide my meds?



Probably in the same closet as your tinfoil hat


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## a_majoor (4 Jan 2013)

No spending cuts and a relative pittance of new income (until those being fleeced rearrange their affairs). Many, greater, cliffs lie ahead, especially the ones where Social Security, Medicare and Medicaide slip into net deficit (projections vary, but it could happen as early as 2016).

The best possible result may have been to stop negotiating and go over the cliff; real spending cuts would have been enacted (bringing America's Debt to GDP ratio down in the medium term), the TEA Party movement would have achieved their goal of reducing the size and scope of government (quite possibly the true reason the Democrats refuse to make any meaningful concessions or cuts; this is the only way they can thwart the TEA Partiers) and there would have been precedent to make meaningful reforms to so called entitlement programs.

Edit to add:

Since the Dems live in a static world and do not consider that people are active agents, they will get a nasty surprise when tax revenues are far lower in 2013 than expected (or even decrease, the same way that the UK's tax revenues decreased after their tax hikes). This is just one of the many plays we can expect to see:

http://www.thefiscaltimes.com/Articles/2013/01/04/For-High-Income-Earners-Time-for-a-Tax-Divorce.aspx#page1



> *For High Income Earners, Time for a ‘Tax’ Divorce*
> 
> By JACQUELINE LEO, The Fiscal Times
> January 4, 2013
> ...


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## a_majoor (5 Jan 2013)

The worst of all possible results in the long term (the worst in the short term being going over the cliff, although the sharp shock would have had far better medium and long term effects):

http://opinion.financialpost.com/2013/01/04/u-s-spending-a-recipe-for-stagnation/



> *U.S. spending a recipe for stagnation*
> 
> Richard M. Salsman, Special to Financial Post | Jan 4, 2013 9:14 PM ET
> 
> ...



And of course a stagnent economy isn't one we will be selling to, with bad effects for us as well.


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