Monthly Archives: December 2012

The Fiscal Cliff that Isn’t

All this debate on the fiscal cliff. Each side blames the other for failing to achieve a resolution. Both are influenced by the big money since if a tax increase is to happen, it is more likely to affect those who make the most profit. But in the end, there is no issue. It is made up,  yes a fictional point of no return driven by congressmen struggling for greater authority than the constitution grants them. Lets break it out.

This all started when the Tea-party faction held the debt ceiling increase hostage to a vote on a balanced budget amendment. But going back we find that there is no limit to the debt. In fact the

This all started when the Tea-party faction of the US House held the debt ceiling increase hostage to a vote on a balanced budget amendment. But going back we find that there is no limit to the debt. In fact the U.S. Constitution, 14th Amendment reads the U.S. “debt shall not be questioned” so congress questioning the debt could be considered “treasonous”. In fact that’s where it all began in the first place, when House of Representatives passed a statute almost one hundred years ago, to limit total Federal spending in order to keep President Wilson from entering World War I. This statute limited the total amount of active Treasury notes and bonds that could exist at any moment in time. This so called “debt ceiling” has been raised by Congress again and again with little debate over the years and thus has not fallen to the constitutional challenge it really is.

Interestingly this faux requirement to increase the debt ceiling is in it’s application a challenge to all U.S. authority as it implies “required approval” to spend money and operate government programs that Congress itself has already passed and funded i.e. already approved by both congressional bodies and signed into law by the President per the constitution. In one financial researchers view when the ” House of Representatives decided not to vote to raise the Treasury debt issuance limit and thereby by stop the Federal government from spending and ultimately from functioning. They threatened to “shutdown” the Federal Government unless they got a special deal to get their proposed statues to cut Federal programs passed by the Senate and signed by the President. This was nothing less than a majority of one body of Congress back mailing the President and the other body of Congress.”

The fact is, though, that our national government doesn’t just borrow in its own currency – it issues that currency. And so its ability to spend is not constrained by its tax revenues. We don’t need to tax the rich – or anyone else for that matter – in order to spend. We only need taxes as a way of managing excess demand and preserving a stable currency while achieving other public purposes.

What do do now? Ignore the “cliff”. There doesn’t need to be any deal, nor should there be any deal. Congress needs to get about it’s business of passing effective bills, funding them, and cease making them additionally subject to further (unconstitutional) approval. Clearly it’s far easier for the hypocrites in the chairs to speak about a balanced budget while remaining unable to approve a plan for taxation and/or spending which might do so over the long haul. If it needs to be balanced right now, during a recession when spending is necessary, is fodder for another day. Meanwhile take the time to read the Dan Kervick piece referenced above…he offers some extraordinary yet reasonable alternatives to get out of this self-made mess.