Wednesday, January 2, 2013


Despite all of the sturm und drang coming out of Washington over the past several weeks, the "Fiscal Cliff" was never the problem. This chart is the problem.

The two blue lines need to cross until the United States has paid off or significantly paid down its Public Debt, and then they need to stay together (barring some sort of real emergency). Either the light blue line needs to go up higher, the dark blue line needs to come down lower or both. But there is no other option.

There are multiple ways to skin this particular cat - all that matters is that the cat is skinned, one way or another. The longer we wait, the more drastic the measures that need to be taken are going to become. We're really already past the point where it's possible to place all of the burden on one group or another. We're all going to have to pitch in.

Which is never going to happen. (I'm aiming for realistic here, not brain damaged.) At least, not until it absolutely has to, and maybe not even then. If international banking and investing has taught us anything, it's that if you promise a high enough rate of return, the fact that you stiffed the last set of chumps for a few billion (or trillion) dollars won't be an obstacle to other people lending you money. It's been said that the United States does the right thing after it's run out of other options. I'm starting to think that the smart money says that the "right thing" won't happen even after the other options are exhausted.

We live in a society where people will, with a straight face, describe waving enough money in someone's direction as a form of coercion. And no matter what happens, there is someone waiting for every dollar of government outlays who is convinced that they'll drop dead on the spot if they don't get it. And someone else who's convinced that every dollar of government revenue is condemning some hardworking soul to a life of poverty. Raising revenues and cutting outlays both have large constituencies that are lined up to oppose them at every turn, backed by a public that is easily convinced that it will all work itself out in the end.

Which it might. After all, there was a surplus, however brief, during part of the Clinton administration, and there's nothing that rules out another economic boom like that in the future, which allows the government to pay down the public debt without people really feeling the pinch. But that isn't likely to happen by itself. We're going to have to roll up our sleeves.

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