Monday, November 12, 2012

The Fiscal Cliff or "Hey Buddy Can You Spare a Dime?"

Mentally picture 4 or 5 dogs all pulling on a towel in different directions, this is Congress in action. The towel represents our budget. So when you come down to it, it’s not a very big towel. The consensus is, Congress needs a bigger towel. How we get there, is more taxes or print more dollars. Both do the job, but when you raise taxes, you can point to who raised them. But when you print dollars, you can’t blame Congress, that’s how the economy is, we live with inflation.

The real problem is that the benefits and entitlements take up almost the entire budget, and we have to borrow to pay the rest of the bills. The President doesn’t have to worry about reelection, but the Congress does; so none of the entitlements and benefits will be cut without a long drawn out fight. Whatever the compromise, it won’t even be close to enough to fix the existing problems of funding.

Figure that total tax collections next year, even with a tax the rich provision, will probably be far below this year’s totals. Remember we are not taxing rich people, only high wage earners. So a doctor making 250k, what does he do to limit tax liability? He forms a Limited Liability Corporation and pays himself about 60K a year and slaps the rest into a retirement fund. If you’re an oil company, forget American investments; drill where you get tax breaks.

State governments’ layoffs will start in the coming week (the election is over), government employees have to be given 90 days’ notice now. If you’re not part of the Police or Fire department, count on layoffs. The teachers will be thrown under the bus. The voting’s over; education is where the first cuts come.

Congress wants to raise taxes on the rich and lower them on the middle class. It sounds great if you’re pandering for votes trying to get reelected. Do we dare assume that rich people are incredibly stupid and will pay more? It’s probably the middle class that is incredibly stupid. They believe Congress has done something constructive by extending the same tax cut another 4 years that will expire time and time again. And of course it will forever be called the Bush tax cut. Realistically, Congress has to drastically reduce entitlements by 50% and/or most probably double everyone’s taxes. That wouldn’t be a bad thing in a robust economy, but in this economy, neither is an option. A legislative solution to our fiscal problems doesn’t exist with the current thinking in place. Entitlements will not be addressed.

As if things couldn’t get worse, Obamacare, will start cutting into many wage earner’s paychecks . The national work week has now been (unofficially) reduced to 32 hours (part time workers don’t qualify for health benefits). And those that paid some federal taxes working 40 hours will now pay none (working less hours). Of course where you once had 4 employees working 40 hours you will pick up one new worker when we go to 32 hours. Your hourly wage stays the same, your paycheck is smaller, your standard of living drops, and more people will be employed--oh goodie!

The real problem just becoming apparent, we are in a depression, greater than the Great Depression. We can’t tax our way out of it, and since we have already borrowed almost every dollar in the banks, it will be impossible to print more money without inflation. Bernie Madoff's problem wasn’t with the money he had in the bank; it was the money he needed to withdraw for redemptions (consumption). As long as everyone keeps their savings in this “FDIC insured piggy bank” there is no problem. The Governments problem starts when everyone wants to spend their saving at the same time. The reward of consumption (instant gratification) is presently a far better value than the saving rates offered by a bank of one percent interest, considering the current 6 percent inflation rate.

The fiscal cliff out there that everyone is referring to is the fact that we are broke. Our government is running out of people to borrow from. A sign from the great depression in a grocery store read, “In God We Trust, all others pay cash.” In 1933 you bought a box of apples and sold them on a street corner to make a living. Now, the government is proposing to buy the box of apples and . . . .—“it’s going to be ‘different’ this time around. “ The trouble is, nobody is sure what that means.

Copyright 2012 by Jim Brubaker


Anonymous said...

In this society everything is backwards or upside down. White is black, fiction is fact. This has been going on for a long, long, long time. It is just that now the veneer is wearing away... the unusual solutions, the corruption, the self-serving, the favors, the confused priorities, inability (or unwillingness) to predict consequences, lack of real leadership, lack of personal ethics and the like have finally grown to the point where they have created circumstances that are categorically impossible to resolve. Irreparable damage. People can't confront hitting the reset button. Everyone will delay for as long as it is feasible rather than deal with the horrid reality lurking outside their immediate perimeter, just on the edge of their consciousness. In this universe you always have to pay the price for your misdeeds or omissions. Need I say more?

Jim in San Marcos said...

Hi Anon 11:16

I agree. I fact if you try to fix it and fail, you get the blame.

Our problems will fix themselves if given enough time, the trouble is, we won't like the end solution.

ATP said...

Seems to me Jim that none of this ends peacefully.

I don't see half the country continuing to slave (yes, its slavery) having both parents work and in some cases two jobs to keep not only their own family above water but for the other half of the population that expects the Eagle to drop bird turds in their bank accounts every month.

With the "entitlements for votes" mentality growing, let's face it... the national debt is NEVER going to be repaid. Every great nation has failed and the United States will be added to the list.

Conflict has always been the solution of the ruling elite to solve insolvency and overpopulation problems. Lets not forget that US agencies have purchased over 1.5 billion rounds of ammunition over the last year. That is 5.5 rounds for each and every citizen. Does the federal government have plans of distributing the rounds... or firing them upon us?

No sense in ignoring the doom and gloom on the horizon. It is no accident that NATGEO (one of the DISCOVERY's propaganda channels) is running the Doomsday Preppers series. I hope all the folks who have been mocking the show have been taking notes.

See you on the other side Jim.

p.s. Buffet is starting to buy up news paper outlets throughout the country. Smart move, considering the beloved internet and the electric grid will be the first thing to go when the shit-hits-the-fan.

Jim in San Marcos said...


Checklist for you:

Own your own home

Have 3 months food in stock

Own one shotgun (you can't miss if your a poor shot). and two boxes of ammo

Have about $1,000 in silver coins and you should be able to weather out this mess.

Its going to get rough, and the nice people could get hurt. I do believe that our minds tend to get carried away with our imagination. I don't think it will be as bad as what our imaginations can manufacturer

Joseph Oppenheim said...

Leo Tolstoy:

"The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded he knows already."

Joseph Oppenheim said...

A housing boom is on in the US....recession ended......all-time low interest rates......shortage of good properties in good locations.

US stocks have nearly doubled from they're 2009 lows.

US Treasuries have already gone parabolic into bubble territory.

Joseph Oppenheim said...

"their" instead of "they're."

Anonymous said...


Can you explain your reasoning behind the 3 months of food.


Jim in San Marcos said...

Hi Anon 4:34

There are two types of food shoppers, those that buy in advance when there are sales, and those that buy things when they run out or more or less shop for the week.

If you have ever gone out to by a jar of mayonnaise when you need it, you know what I mean, its about 4 dollars. On sale with a coupon, its a buck. Peanut butter, Chile, pork and beans and canned vegetables are half off when on sale. I'll buy about 12 of an item when it goes on sale (if its something I love to eat).

So over a three month time just about everything goes on sale and you end up paying about half for your food. Meat, I freeze.

Of course you need to take this with a grain of salt, I found out that a lot people can't even boil water, so eating out is a treat for them.

Your not going to keep a constant three month supply of ketchup or anything else, you'll buy enough for 3 months and start shopping for it again when you run low.

If there was civil unrest, you become a target when you leave your home to shop for food.

Jim in San Marcos said...

Hi Joseph

Great quote and a valid reason not to discuss religion or politics, its usually a lost cause.

Anonymous said...


I certainly understand buying and storing food on sale.
But are you really expecting that level of civil unrest?

Joseph Oppenheim said...

Great quote and a valid reason not to discuss religion or politics, its usually a lost cause.<<<<<

Sorry, Jim, but Tolstoy didn't exclude politics or religion from his quote. And, I don't.

An open mind can handle anything.....politics, religion.....throughout all of history, both have played an important role in determining economics, on a micro and macro scale.

Lost cause? Tolstoy covers that in his quote......yes, for some.

Jim in San Marcos said...

Hi Anon 3:48

I'm not expecting civil unrest, hurricanes, earthquakes or tidal waves.

I just don't have to worry about them.

Anonymous said...

Did you see the news on raising the debt ceiling to infinity?

First there was Helicopter Ben.
Now we have Treasury Secretary Buzz Geithner: "To infinity... and beyond!"

With great leaders like this, how can we fail? :)

Jim in San Marcos said...

Hi Anon 9:05

I guess, just be glad they're not trying to repair your car--you couldn't afford them:>)