Guess What They're NOT Cutting in the Fiscal Cliff…

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by Simon Black Sovereign Man

Recently by Simon Black: ‘Renounce Citizenship’ Is Now One of the Fastest-Growing Search Terms inGoogle

Santiago, Chile.

In his farewell address to Congress this week, Ron Paul blasted the dangers of what he called ‘Economic Ignorance’:

“Economic ignorance is commonplace. . . Believers in military Keynesianism and domestic Keynesianism continue to desperately promote their failed policies, as the economy languishes in a deep slumber.”

He’s dead right. Around the world, economic ignorance abounds. And perhaps nowhere is this more obvious today than in the senseless prattling over the US ‘Fiscal Cliff’.

Here’s the deal: You may remember the Debt Ceiling debacle of 2011. At the time, the US government was about to breach its debt ceiling, and there was an embarrassing standoff between Congress and President Obama.

As part of their eventual compromise, the debt ceiling increased by $400 billion in August 2011… then again by another $500 billion five weeks later… and finally by another $1.2 TRILLION twenty weeks after that.

In return, President Obama signed into law the Budget Control Act of 2011. The law stipulates that, unless another compromise is reached, a series of tax increases and budget cuts will automatically take place on January 1, 2013, including the expiration of the Bush tax cuts and the temporary 2% payroll tax holiday, plus new taxes related to Obamacare.

They call this the ‘Fiscal Cliff’ because everyone is terrified that all the budget cuts and new taxes will bring the US economy to its knees once again.

I’ve spent days analyzing the bill… and frankly, it’s a joke. You can read the 200+ pages yourself if you like, but here are the important points –

As we’ve discussed before, US government spending falls into three categories.

Discretionary spending is what we normally think of as ‘government.’ It funds everything from the military to Homeland Security to the national parks.

Mandatory spending covers all the major entitlement programs like Social Security and Medicare.

Then there’s interest on the debt, which is so large they had to make it a special category.

The latter two categories are spent automatically, just like your mortgage payment that gets sucked out of the bank account before you have a chance to spend it. The only thing Congress has a say over is Discretionary Spending. Hence the name.

But here’s the problem – the US fiscal situation is so untenable that the government fails to collect enough tax revenue to cover mandatory spending and debt interest. In Fiscal Year 2011, for example, the US government spent $176 billion MORE on debt interest and mandatory spending than they generated in tax revenue.

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