Knowledge Creates Power: The Truth About The Fiscal Cliff In Simple Terms

Monday, December 31, 2012

The Truth About The Fiscal Cliff In Simple Terms

By: AJ - Cross-Posted at the NoisyRoom

Many either don’t know what the “fiscal cliff” is, or believe this problem is something that it’s not.

Although America ’s economic crisis is not rocket science, the media and politicians have done a good job of keeping the truth hidden so that our focus isn’t on the real problem. After all, if we, the people, understood the real problem, we would demand that they fix it and we are smart enough to know the real fix that’s needed.

To prevent this from happening, politicians and media conjured up this catchy phrase called “the fiscal cliff.” Then they established a narrative that gave us a false target to blame – the so-called “rich.”

In other words, keeping the people’s attention on class warfare directs our anger and rhetoric onto the false target they’ve fed us and off of ‘what’ and ‘who’ created the problem in the first place. This distracts us from formulating and voicing the real solution to the true problem.

So, what is the real problem that created this crisis?

In a nut shell, our elected politicians have continued to spend trillions more in the past four years than taxpayers have given them. Thus, they have brought America ’s economy to the point of near collapse. It’s that simple.

Three of the broader consequences of what they’ve done are:

For the first time in the history of our nation, America ’s credit rating has been downgraded – twice.
Our national debt now exceeds its yearly gross domestic product (GDP).
The value of the dollar continues to decline, which makes prices rise on the things we need and want (i.e. inflation).

Right now on Capitol Hill, politicians claim to have a deal in the works whereby they will:

“…raise the tax rates on family income over $450,000 and individual income over $400,000 from 35 percent to 39.6 percent, the same level as under former President Bill Clinton. Also, estates would be taxed at 40 percent after the first $5 million for an individual and $10 million for a couple, up from 35 percent to 40 percent. Unemployment benefits would be extended for one year.”

While politicians and media are in lock-step focusing everyone’s attention on whom the government can take more money from, who realizes that this simply allows the politicians to continue to spend trillions more at our expense?

Taking more money from the people will result in less growth of the economy, which leads to greater loss of jobs, which leads to increasing the number of people plunged into poverty.

For those buying into the class warfare narrative, know that you are supporting your own demise. How so? The trickle down effect most people don’t realize is that, whether you’re a car mechanic, a retailer, a construction worker, a car dealership, a waiter, a grocery store cashier, etc., these businesses are negatively impacted when customers have less money to spend; therefore, employers will have less income with which to pay employees. Jobs will be eliminated and some businesses will have to shut down altogether.

It’s not rocket science, it is economic reality.

So let’s cut through the political spin, false narratives and diversions and give you the simple truth about the economic crisis and the real solution, which can be found in a “real world” example of what people have to do when they’ve created this same kind of financial mess for themselves.

This might be a helpful way to explain it to family and friends who aren’t aware.

We already know that when a person, family or business continues to spend a lot more than they take in, eventually they find themselves in pretty serious financial trouble. Why? Because they’ve amassed an unsustainable amount of debt that they cannot realistically repay. (Same goes for a country, and that’s exactly what our politicians have done.)

Think of a family that takes home $50,000 a year. If they spend 25% more than they take in each year (say they’re spending $62,500 each year even though they only bring home $50,000 a year), after four years, they’ve accumulated $50,000 in new debt, plus interest, which they owe to creditors.

What happens to this family? Interest on the debt continues to accrue, their FICO score (credit rating) declines and their creditors warn that action will be taken against them to recover what is owed.

The family now has to solve the financial mess they created for themselves.

If they’re serious about solving the problem, what’s one of the first things they have to do? Cut spending.

In addition to cutting their spending down to what they take in ($50K/year), they’ll cut even more spending so they can begin to pay off the debt and interest they racked up.

In most cases, when creditors start receiving regular monthly payments on the debt, things will stabilize as long as the family continues to pay. It becomes apparent to creditors that the family has created a budget that reduces spending and frees up money to start paying down their debt.

When we look at the typical things this family will cut, first to go are luxury purchases, trips, gifts, costly entertainment/hobbies, sending money overseas… basically, non-essentials that they couldn’t afford to be spending on in the first place. Next might be things like having meals at home instead of eating out at restaurants, sack lunches for the kids instead of the daily school cafeteria expense, trading in the fancier car for one that’s half the cost, driving less, using less in utilities, etc.

If that’s not enough, they may start selling non-essential possessions/assets to raise more cash to pay toward their debt. Taking on another job would be good, but in this Obama-economy it’s probably not a realistic possibility. Some families may even need to downsize their residence; move to a two-bedroom apartment instead of maintaining the cost of the four-bedroom home they’ve been renting.

Bottom line is the family has to cut their spending “with a chainsaw,” as Jim Roger’s said when referring to what the government needs to do to solve the financial mess they created for our country.

But politicians refuse to cut spending. They want to continue spending trillions more than they take from us each year.

What is their solution?

Create a faux fight over how much MORE they will take from us so they can keep over-spending.
Keep spinning it as class warfare to give us a false ‘target’ to blame.
Keep us fighting among ourselves as we get behind one of the political party’s ‘plans’ (so that we’re actually rooting for their solutions to take MORE from hard-working taxpayers).
Divert our attention away from the real problem and the politicians who actually created the problem.
Remain blind to the fact that politicians want to perpetuate the problem, not solve it.

Insidiously brilliant, isn’t it? It is masterful propaganda and it’s what they always do.

Investopedia explains what will happen if politicians don’t act, but don’t forget that all the ‘expirations,’ sequestration and triggers were put in place/enacted by them.

“If Congress and President Obama do not act to avert this perfect storm of legislative changes, America will, in the media’s terms, “fall over the cliff.” Among other things, it will mean a tax increase the size of which has not been seen by Americans in 60 years.”

So you see, it is our elected politicians who set the stage for this crisis in order to dupe the American people and carry out the political theater now on display so they can get away with taking more from taxpayers, continue the massive over-spending and avert the possibility of torches and pitchforks outside the Capitol.

When these politicians conclude this round of theater, American’s will unwittingly breathe a sigh of relief that they reached a ‘deal’ and saved us.

In reality, the cold hard truth is that we, the taxpayers, continue to serve at the feet of these politicians. As long as they can take more from us – and they surely can – that’s exactly what they’ll continue to do until we have no more for them to take.

The truth about the fiscal cliff, in simple terms, is that the President and Congress deliberately created the economic crisis our country faces. Their massive spending is intentional and, clearly, it hasn’t helped us; it has hurt us. Their intention all along was to continue to take more and more from the people, thereby increasing their power and wealth – and extinguishing ours. How better to expand the ranks of the poor, further de-industrialize America and destroy, from within, a once-great and prosperous nation?

After all, isn’t that what the Progressives’ hundred-year journey to institute “social justice” in America, from both sides of the aisle, has been all about? Of course it has.

Tyranny comes when the people of a nation can no longer do what they did when they were free. Are we there yet?