What Actually Predicated the Fiscal Cliff?
Posted on Jan 4 2013 at 09:15:00 AM in Politics
The media, talking heads, politicians and presumed experts have been feeding the public the story that the Fiscal Cliff was made possible, if not inevitable, by the Congress and the President put on hold addressing the deficit spending and debt ceiling difficulties and all the rest of the economic woes by passing a resolution setting this New Year as the deadline where the Bush Tax Cuts would automatically be rescinded and sequestration would cut spending across the board with a significantly larger cut being imposed on the Military parts of the budget. Unfortunately, this simplistic view leaves untold the reason that we are running more than a trillion dollar per year deficit spending. The rush to blame the other party or the other branch or house of government has obscured the springboard that launched the budget into this predicament. The truth is there is more than enough discrediting blame to go around and cover both the Democrat and Republican Parties. The originating start that placed us on the path to eventually hit a wall where spending would outstrip any possibility of taxes and fees being able to cover the spending by the Federal Government once allowed to spend outside of the Constitutional limits began almost from the inception of the constitution replacing the Articles of Confederation. This diversion from the strict limitations placed by the Constitution began very early in the history of the United States but the egregious disregard for Constitutional limitations began with the legislations and Presidential executive orders implemented to address the Great Depression of the 1930s.
The three signature programs that got their start as part of the New Deal under the economic policies of President Franklin Delano Roosevelt were Social Security, Unemployment Insurance and the Minimum Wage. The next major damage done by the politicians in Washington were enacted as parts of the Great Society proposed by President Lyndon Baines Johnson with much of it touted as instrumental in the War on Poverty. After these two initial significant increases in the social spending by the Federal Government and the companion spending which was required or adopted by the individual States we have simply added additional coverage under these laws and programs with the occasional new program but as these existing programs had such an enormous cost that each addition seemed minor in comparison. Of course there were some programs which did add significant cost or set up situations which would eventually explode and destroying the societal economic wellbeing. One such program was the Community Reinvestment Act which was passed into law and signed by President Jimmy Carter. This law was used to intimidate banks and other mortgage lenders to make loans to marginally qualified buyers. Under President Clinton the CRA was expanded which set the housing market on the fast-track to forming a bubble which would crash in 2008. Under President George W. Bush we were given the Medicare Prescription Drug, Improvement, and Modernization Act which added excessively to the costs of Medicare. The latest major spending program is still being implemented and is the signature program put forth by President Barack Obama, called the Affordable Care Act. The full impact of this legislation will not be felt until later in this decade when it becomes fully implemented and all of its institutions and coverage have been instituted. These were just some of the most costly of the many new programs that have been instituted by the Federal government almost nonstop since the 1930s with the purpose of eradicating poverty in the United States or providing the social and financial safety net for all.
All of the above and the other items instituted over the years have had their individual and collective effect in pushing spending by the Federal Government beyond the ability of the economy to cover no matter what the tax rate. There is one last action which has to be discussed and is very likely the single most important contribution in causing the Fiscal Cliff yet has been overlooked by the majority of pundits, journalists and the rest of the coverage of the presumed coming disaster. This event was more of a procedure which was executed over the first eighteen months of President Barack Obama’s first term in office. It all is a part of the disregard for the financial, fiscal, and budgetary requirements of the Constitution by President Obama, his administration and the totally controlled Democrat Congress as they did not pass an actual budget during his first term. Instead of meeting this requirement the Congress in cooperation with President Obama passed individual spending bills which made allotments by department or program without forming an all-encompassing budget which covered and identified a budget for each department, program and other expenditures. This allowed for President Obama to stipulate a series of spending increases for those departments of the Federal Government which he favored large spending increases. Through this subterfuge that the President committed with the willing cooperation of a rubber-stamp Congress enabled for an increase of as much as thirty percent increase in the baseline budget of virtually every social program and their overseeing agencies. This forever increased spending in these selected departments and programs without ever needing to actually propose additional spending as the initial increase was used as the new baseline spending onto which the COLA annual increases would be applied as well as whatever the standard increase was applied to the entire budget if and when the Federal Government returns to actually passing budgets as required by the United States Constitution.
These slyly placed spending increases are a major portion of the items which have pushed spending causing the United States Federal Government to be running over a trillion dollar per year deficit which also resulted in constantly crashing into the debt ceiling. The main reason that the taxation and spending consequences were put off in such a way that the time would eventually arrive where the Democrats would get everything they dreamed of and the blame would be placed on the Republicans, what could be better? What is interesting is if one inspects the previous times when similar fiscal difficulties have struck the Federal Government and where the blames have been placed. When there was a budgetary war fought between the Democrat Congress and Republican President Ronald Reagan the media laid the blame for the impasse on President Reagan and allowed the Democrat Congress to get a pass. The next conflict over a budget came as a disagreement between Speaker of the House Newt Gingrich and President Clinton. The entire fault was reportedly due to the intransigence of Republican Speaker of the House Gingrich and no blame fell upon Democrat President Clinton. Now we are facing the dreaded Fiscal Cliff and once again it is the Republicans in the House of Representatives who are to blame while Democrat President Obama along with a Democrat majority Senate are given a pass. There does appear to be a pattern here.
Meanwhile, back to the perfect situation the media is giving the Democrats and President Obama by placing all the blame for the lack of an agreement on the Republican House as if the President would approve any budget and solution the Republicans would send to him. In some manner that is a true statement but solely because even if Speaker of the House Boehner managed to marshal the votes to pass a budget, it would never even get heard in the Senate as per the promise of the Democrat Majority Leader of the Senate Harry Reid. Between the protective shield provided by Senator Reid and the Senate and the media and their favorable reporting gladly placing all blame for anything fiscal at any time squarely on the Republicans, the President can afford to take a vacation and grandstand claiming to return early to get serious when the only seriousness the President will demonstrate is rolling up his proverbial sleeves. Otherwise, the only actions that President Obama has taken has been to demand that he get everything he demands and anything in the way of a compromise is out of the question.
Looking at the situation which directly caused the Fiscal Cliff we get a far different picture than the media has laid out for us to consume. The initial steps on the path which has gotten us to the precipice of a cliff were made a long time ago. This extra-Constitutional spending by the Federal government started long ago even before President Theodore Roosevelt began purchasing lands placing them under Federal Government ownership as Federal Parks denying the sovereign States of their right to utilize the lands within their borders as they saw fit. The huge steps taken which was the base-work in establishing the concept of social spending being under the purview of the Federal Government were done under President Franklin Delano Roosevelt and subsequently by President Lyndon Baines Johnson. The problem has been further expanded and exasperated by virtually every President and Congress since LBJ. The Community Reinvestment Act was instrumental in setting up specific criteria which would be expanded eventually leading to massive failures to pay on loans leading to a run of foreclosures which resulted in a crash of the real estate market causing bank and other financial institutions to fail as they held what had become toxic mortgages where the properties were worth a mere percentage of the loan value. This difficulty was handled in what may prove to have been the worst possible manner by initiating a Federal Bailout which was the brainchild of President George W. Bush. Doubling down on this troublesome solution was reapplied to cover even larger sectors of the economy of the United States was initiated by President Obama. At the same time, President Obama used the existence of a super majority in the Congress which precluded any possible meaningful opposition by the Republican minorities in his plan to vastly increase social spending. President Obama managed to repeal all the reforms placed on welfare, food stamps and other Federally mandated social programs that had been passed in compromises between a Republican Congress largely led by Speaker of the House Newt Gingrich and President Clinton during his second term. President Obama then directed that these programs begin a special enlistment project to maximize their coverage rolls. This push became most noticeable in the increase in Food Stamp recipients. President Obama also pushed to increase spending in every program he favors and tasked others to perform some forms of social functions replacing their previous primary functions with these new priorities. The special additional investments in social programs led to an unusually large increase in the spending on these programs and subsequently on their parent departments. This set a new inflated base spending in these areas which has now led to the problem in balancing the new baseline budgets with the available funding. Procrastination was used to set a trap that is now about to be triggered. When facing this fiscal nightmare the Congress along with the President decided that it might be easier to address the new budget slowly and with greater care and thought and so the trap was set. The trap agreed to was that if the Congress and the President were unable to find a compromise by the end of the year, then the Bush tax cuts would be allowed to expire, a Democrat dream objective ever since these lower tax rates were passed, and sequestration cuts would be made across the board in every department with an extra measure to be taken from the Pentagon and military budgets. Now we are facing the consequence of this agreement and time is growing short. What to expect?
Either we will go over the Fiscal Cliff, a meaningless consequence that has been pumped up and made into a huge and scary monster, or the Republicans will compromise and be censured by the media for not giving in sooner and their constituents for compromising their principles. The question people need to remember the answer to is why would the Democrats compromise when what they really desire is for huge cuts to the military, NASA and other nonsocial budgets with minimal cuts to welfare, food stamps, and other social spending along with tax increases on everybody. The Democrats get their wildest dreams coming true simply by doing nothing but refusing to cooperate and they can count on a media which will absolve them of any blame while thoroughly scorning and condemning the Republicans as solely responsible for the refusal of a compromise being attained. After this pretend emergency has passed, just like the pretend disasters previously when shutting down the government because of lack of agreement on a budget was supposed to bring on the apocalypse, life will continue and the consequences of the miserable handling of the economy and spending will still not yet be evident. All the hoopla and grandstanding about the Fiscal Cliff is much ado about nothing and the consequences that led to this situation will continue unmentioned by the media because they are adverse to reporting the shortcomings and shenanigans committed by their hero, President Obama.
Eventually the consequences of the fiscal extravagances that have been the main fare of the Federal Government for much of the last century will come crashing down upon our heads and thin out our wallets. Thus far we have been spared by another group whose irresponsible actions have facilitated the extravagant overspending by the Federal Government simply by keeping the interest rates deceptively at their current low level. This charade cannot be kept up forever and eventually the rates will need to rise to their natural level. The only reason the Federal Reserve has escaped harm from their deceptive ploy keeping interest rates so low is because the Federal government has adjusted how inflation is measured in order to obscure their real levels. Why else did the measurement of inflation be adjusted in such a way that food, energy, and petroleum prices were not considered as essential elements of our lives and thus not included? I know I eat and use energy and have to feed my vehicle, but apparently the Government does not believe I have any need to purchase such things. This sin of forcing the interest rates to remain low is not only the fault of the United States as Europe and much of the rest of the world gladly goes along with the charade as they also get to enjoy cheap money due to low rates on their loans. When the future point is passed and the interest rates must rise or inflation will destroy every economy and there is no longer any choice, then everybody will pay for their sins. Whenever this event comes to fruition it will be best if you have absolutely no outstanding loans, especially credit cards. Long term loans such as car loans and mortgages which have fixed rates will be safe but any adjustable rate debt will become unaffordable as interest rates are very likely to become prohibitively high, possibly reaching or exceeding twenty percent. Let this be a wise warning that the day will soon arrive when adjustable debt will become an anchor that drags your finances into the deep and they will drown you. The governments of the world will pay for their excesses but there is no reason that we as individuals must be as irresponsible as our governments have been.
Beyond the Cusp