In a few weeks’ time, the US will approach an important financial landmark.
When the New Year comes, as usual, on January 1, the country will be standing on the verge of an abyss and gazing down in fear.
The Americans like thinking up all kinds of dramatic comparisons, and they have applied the phrase “fiscal cliff’ to the time when the Budget Control Act of 2011 comes into force.
Everybody is scared to step off this cliff.
On January 1, taxes will be raised for almost all the Americans, while budgetary expenditures – about a thousand governmental programs – will be automatically and radically cut down. This is what the lawmakers agreed upon last year to be able to deal with the all-time high public debt.
So the Americans themselves drew this line and then invented the “cliff term” so that one could be scared of this line.
Word has it that there are ample reasons to be scared.
Most of the forecasts are essentially saying that scaling the fiscal cliff will be a short-term ordeal for the US economy. The budget committee’s report, published in November, notes that the GDP will drop by 0.5 percent, unemployment will go up to 9.1 percent, and the economy may slip into a recession.
And what about the longer-term prospects?
It turns out that things are not so bad here. This is in fact the reason why it was decided to revise the budget. Just in a year’s time, economic growth will speed up, and a stronger labor market will have reduced unemployment to 5.5 percent by 2018.
Therefore, if Congressmen fail to make a deal (which they are frightenedly trying to do now, especially on TV and in newspapers) and leave the last year’s law alone, stepping (jumping?) off the cliff will be inevitable – just the way they conceived it. And the federal government will have to do what it has been refraining from doing all this time at its own will – to drastically change the fiscal policy. By 2020, budgetary revenues will be half a billion dollars higher than they would have been without these changes, expenditures will be just a little lower, but the public debt will amount to 14 trillion dollars, 5.5 trillion down on the projected 19.4 trillion. In other words, the US debt will account for 1.1 percent of GDP in the next 10 years if the lawmakers are bold enough to continue what they began and do not change anything, or it will 4.9 percent of GDP if some of them lose their nerve.
It is a very essential difference.
I wonder if everybody knows this.
President Obama is certain to know. So he, the White House’s main negotiator with the Republican Congressmen, has announced that his administration “is determined” to step off that cliff if the Republicans do not agree to increase taxes for the two richest percent of the population.
The president’s stance is becoming increasingly tougher with each day that brings the country closer to that line – perhaps because Obama knows only too well that the fiscal cliff has already been overstepped. This occurred when his government boosted the debt by a record number of trillions. This line was overstepped when the country had borrowed so much money that there is nothing more to borrow – not because nobody lends but because going on to borrow on such a scale is bound to bring down the world financial markets.
US revenues can no longer exceed the debt and public expenditures which have been constantly growing since the mid-to-late 20th century and, at the same time, have been raising a generation of people who are looking for a governmental sop.
This is a most tragic thing for a country where individuals still speak of and believe in the “American dream” and are used to relying on themselves rather then on their government.
I wonder if they will manage to revive this dream at the bottom a fiscal abyss.