My Feelings On The US And This Fiscal Cliff

Ben Bernanke gave us the term “fiscal cliff” this past summer, and it has captured the public imagination. For someone who thinks he can control the economy, the ultimate disaster is to have a recession occur on his watch. Given that the toolbox that the Federal Reserve can bring to the next recession is essentially empty, it is a cliff indeed from Bernanke’s perspective. And let’s make no mistake: if nothing is done either before or shortly after the first of the year, our already weak economy will wander off into recession.

The Fiscal Cliff Is Not the Problem

Why would either side risk going over the cliff? Because there are greater issues than simply avoiding a recession for the US in 2013. The real issue is the deficit. The leaders of both parties recognize that the current path spelled out on our fiscal balance sheet is unsustainable. The deficit must be brought under control (which is not the same as the budget being balanced), or the US will find themselves all too soon in the situation now facing much of Europe and Japan.

And as Australians the larger question before the US is: how much health care do we want, and how do we want to pay for it? If we look at the polls and the recent election results, it seems we want a great deal of health care – and they want someone else to pay for it. The economic consequences of not reforming the entire entitlement structure are lost on the average US person and indeed on the average Congressman.

Given that 40% of the voters in the last election were single and that singles are now the fastest-growing portion of the voting population, it is going be almost politically impossible to craft a Congressional majority that will favor going back to the level of government spending on health care that we saw even 10 years ago. Like it or not, the question is not whether the US will have health care, but rather what form it will take and how much it will cost them.

The reform required is to dramatically increase taxes, which will have to happen here and globally.  Stay tuned!