All of official Washington and their media lapdogs are shaking in fear of the so-called “fiscal cliff” that is looming January 1, counseling that the economy needs to continue its wild trillion-dollar deficit spending habits into the indefinite future.
The possibility that the federal deficit might not be as large next year has the establishment frightened, especially Federal Reserve Chairman Ben Bernanke. “The realization of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery — indeed, by the reckoning of the Congressional Budget Office (CBO) and that of many outside observers, a fiscal shock of that size would send the economy toppling back into recession,” Bernanke told the New York Economic Club November 20. He instead urged Congress to avoid fiscal reality, even as he acknowledged that “the federal budget is on an unsustainable path.”
Of greater importance is continuing deficit spending and currency inflation, which will somehow magically cure the economy and deficit, according to Bernanke: “Preventing a sudden and severe contraction in fiscal policy early next year will support the transition of the economy back to full employment; a stronger economy will in turn reduce the deficit and contribute to achieving long-term fiscal sustainability.” Of course, this is the same prescription Bernanke has advised since becoming Fed chairman in 2006, with less than spectacular results.
The fiscal cliff would cut the federal government's $1.1-trillion budget deficit by $500 billion or more in the next year. It includes $100 billion in cuts from projected spending increases and nearly $500 billion in a variety of tax increases. Because the spending “cuts” are largely cuts from proposed increases, even the leftist Washington Post acknowledged that “the fiscal cliff is the combination of federal spending cuts and tax increases that are scheduled to shrink the federal deficit to $641 billion from $1.1 trillion in the current fiscal year, a decline of $487 billion in one year. Tax increases account for $478 billion, or 98 percent, of the deficit reduction.” Other estimates have the tax increases at substantially more than $500 billion. The spending cuts would be split equally from defense and domestic discretionary spending.
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