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Friday, November 30, 2012

The Contrived 'Cliff'

It really is amazing when one takes a step back from the 'reality' of the world that is presented in front of us which we are mere spectators,to observe how much of it is utterly contrived i.e. an artificial false appearance or quality.

We just experienced two utterly contrived events just within the last seven days -- 'Black Friday' and to a lesser extent 'Black Monday'.  

Both were over-hyped and exaggerated in importance via the clutter of 24/7 advertising, that one would think those who days held any specific meaning beyond buying shit we don't need with money we don't have while saving an additional 2% vs sales given at any other time of the year..

And we have some annual contrived events coming up in the near future.  We won't say Christmas is contrived unless one only embraces the secular commerciality of the day, but New Years Eve certainly is--  so much hype to celebrate an event that lasts mere seconds i.e. a 'ball' dropping...  
Then there's the Super Bowl -- God, don't get us started on that all day pageant of pomp and pompous patriotism glutted with horribly forgettable adverts at $2mil per minute...  and if lucky, some actual football is played in between!!

And amid all these annual contrivances, is a new one, specific to the moment called the 'fiscal cliff'.   Ooohh... sounds so scary... so daunting...   'We're heading over the fiscal cliff children... hold our hands tightly and let us pray...'

Please!

The United States is in debt.  Yes this is true... and we owe our creditors a lot of money.  But you know something?  We've owed our creditors for many decades...  Actually with the exception of a couple very short periods in US history, we've owed foreign creditors since our inception.

And its not really about how much one owes in this world..  Its about two things:  1)  Is there a cap on what a lender will lend? and 2) Is there a time a creditor will ever call in its debts?
And honestly, as history as shown regarding the US, the answers are 'No' and 'No'

Let us say that China decided tomorrow no longer to lend money to the US.. enough was enough... too risky etc...  What happens?   We don't mean in academic terms of proper money management, but reality-- what happens if the spigot of money is cut off to the US?

The entire world economy collapses and we're back to medieval times of bartering, exchanging skills for services, and dramatically localized economies.  The US would suffer most assuredly... BUT..  and this is Vital to understand..  China would too.  

And does any nation, as the saying goes, cut its nose off to spite its face?  In other words... if China would be economically Destroyed, causing utter chaos for its billion-plus people, would it be practical or prudent of them to stop lending to us?

Even in a growing, developing world economy, the US is still the #1 importer i.e Buyer of Chinese merchandise---  they make everything we used to, but we buy up everything that most of their populace still can't afford.
So you see how this is going to go..  We owe $16 Trillion to our creditors... Honestly, so what?  Shocking to write/say we know.. But true.

Everyone made a big deal in 1984 when Reagan expanded the US debt to its first Trillion.. then we passed the $5 Trillion mark..and the $10 and the $15.. and really, has any creditor called in their loans yet??

 If it was an individual who owed so much to others, or a small nation with a weak military like most of Eastern Europe, Africa and South America, then that entity would be in Severe trouble.

But if you're a large powerful nation who is the reserve currency and who's military budget is larger annually than the rest of the world combined, right or wrong, the rules do not equally apply.

A very recent example is Argentina who's finances are so bad and whose credit rating has dropped so precipitously within the last 6 mths to a year that even their leadership openly admits they will ultimately default on their debts...   And because Argentina is not part of the Eurozone, no one will make any sincere effort to prevent it...
Now the media pundits will do all they can to scare the people about the ramifications of us going over this proverbial 'cliff' but fortunately due to the distractions of the holidays, few will be bothered to be up all night worrying on it... unless you're filthy rich.

Taxes will be going up no matter if a resolution is reached or not... that's a certainty.  The question is how much of a percentage increase...  Well that like everything else is all relative.

According to the New York Times in an article written today, back in 1980 a person with an income of $300k paid 49% in taxes.  In 2010, someone making 300k paid 42.1%  Today that person is paying $20,700 less in taxes.

Someone making $22,000 back in 1980 paid 20.2% taxes... in 2010, they paid 19.4%.  That comes to $176 less in taxes.  So you see we've all been paying less (and in some cases FAR less today in taxes than a mere 30 years ago)  

And while to someone only making $22k, that $176 is a lot of $$, you can see how much in savings someone making 12x more per year has gotten to enjoy keeping while thumbing their noses at those making less..
And goodness knows how many millions of dollars the truly affluent have gotten away with not having to contribute to the upkeep and maintenance of this nation, all under the false guise that they are the Only job creators!

And while the stock market pretends it doesn't care what happens by writing headers such as "Fiscal Cliff Drama Won’t Write the Market’s Script" (Yahoo!)... its all hogwash.    Prior to Thanksgiving, the market spiked simply because both Obama and Rep House Leader John Boehner said talks were progressing.   

Then the market dropped by over 100pts early in the week because Senate Majority leader Harry Reid (D) said talks were slow...  Then it spiked on Wed because Obama said things looked positive...

All meaningless bullshit words, really but the market dramatically went up or down based on those verbal breadcrumbs...  So to say the market doesn't care... that's kinda bullshit too...

The vermin who make their living on the trading floors want to make as much profit as humanly possible and pay as little stock dividends tax as possible on the millions and billions they rake in...  So they care...  
Good news is no matter what happens with the 'cliff', they Will be paying more and they won't be happy about it.. Will be quite entertaining actually to listen and watch them gripe over it in the coming weeks and months...

So ultimately this fiscal 'cliff' is a molehill.   One side will need to dramatically capitulate on their principles to get a deal done i.e. the Republicans. (Usually the party that wins the White House mere weeks ago, doesn't need to)

This will mean if an agreement is met, there will be some cuts but nothing remotely close to the savage slashing upon the poor to lower middle class which the Republicans had in store if Romney won.  And taxes will go up but if Obama keeps his word and doesn't raise taxes on those making less than $200k ($250k for a couple), then there's very little to fear from all this..

Oh the naysayers will say it will lead the US to a recession but think of it like this:  If the economy is good but you have no job, isn't that still a personal recession?   And if the economy is in recession but you still have employment, do you even feel or notice it?    
Its all words really--  we never truly left the 2007 recession but a group of academic assholes got together in 2009 and 'officially' declared it over for reasons of political pressure and expediency.  So if a "new" one was declared in 2013, so what??   Nothing in Reality would change-- only the facade of 'optimism'.

And a cliff falling would strengthen the US dollar's value which is a positive...

So best to enjoy your holiday season, don't get burdened with the day to day progress, and know no matter what happens (or doesn't happen)  it really doesn't matter.