Crisis Mode - the Fiscal Cliff

Now that the election is over, the "fiscal cliff" is a story we are going to be hearing a lot in the next couple of months. If elections actually served to discuss and decide policy, then we might have been hearing a lot about the fiscal cliff during the campaign season. Of course, we did not. Now, just days after the election, we are being told it is the main crisis the federal government must immediately grapple with. It's both an imaginary crisis and a real one.

It's imaginary because, if the Republicans and Democrats now holding federal office could agree on a federal budget - any budget, with any combination of higher or lower taxes and any level of deficit spending - the fiscal cliff would disappear the way a bad dream disappears when we wake up. The mindless across-the-board spending cuts that nobody seems to want exist only because Democrats and Republicans agreed on them. The "ceiling" on the national debt exists only because they voted to create a ceiling.

The national debt itself is as large as it is only because they agreed that one department of the federal government "owes" over 1/4 of it to a different department of the same government. That is, the "Social Security Trust Fund," which is $2.7 trillion of the national debt, means the Treasury Department "owes" $2.7 trillion to the Social Security Administration. And so it goes with other elements of the national debt.

The national debt was created in the first place only because the power to create new money was by law assigned to a consortium of private banks (the Federal Reserve Banks). If our elected officials actually wanted to start the federal government on a path of reducing the national debt, it is within their power - no constitutional amendments required - to dissolve the Federal Reserve and reclaim the power of creating the nation's money supply. 

If that were to be done, instead of the federal government borrowing money from the banks -  Bernanke's "Quantitative Easing" programs - the banks could borrow money from the federal government, and the banks could pay interest instead of collecting it.

In all these ways, the fiscal cliff is a fiction; an imaginary beast. It's just another form of the con games of high finance.

It's a real crisis only because these people - our elected officials - do not agree and will not agree on a federal budget. They are supposed to be making decisions for the general welfare and other purposes specified in the Constitution. When they proclaim the balanced budget is of primary importance and the needs of ordinary people who depend on services funded by that budget - Social Security, Medicare, environmental protections, civil rights, fair and honest courts and so on - are of secondary importance and can be cut in the name of a balanced budget, they are looking through the wrong end of a telescope.

A telescope does not actually bring you closer to the scene, but it seems as though it does. Properly used, it allows you to see details you otherwise could not. You might be able to identify a person by looking at them with a powerful telescope, when your unaided vision can't even say for sure if you are looking at a man, a woman or a child. The democratic process is supposed to be the telescope we train on government policies, so we can see what effects those policies have, and how they can be changed to improve the general welfare.

In a proper democratic process, everyone has a chance to speak about which policies the government should follow, everyone has a chance to vote on those policies, and everyone has a chance to be elected to implement those policies. Then the elected officials can be held accountable at the next election, when the people judge how well the policies and the elected officials have worked out. That's how democracy is supposed to work.

Of course, it's also possible to use a telescope in reverse. It makes the scene seem smaller and much more distant. If without the telescope you could see somebody gesturing, though you can't tell who it is, in the backwards telescope you can only see something moving. You may not be able to tell if it is a person, a big bird or just a flag flapping in the wind.

Looking through the wrong end of the telescope might be helpful for anyone trying to convince the public that "balancing the budget" is important, and people who need to buy food and fuel and all the other necessities of life are not. Repeating that the "fiscal cliff" is a crisis, politicians and the commercial news media are trying to convince us to look through the wrong end of the telescope with them. They are using democracy for purposes entirely at odds with the general welfare.

The "job creators" have been getting tax break after tax break for decades, with both Republican and Democratic administrations in power. This has somehow neither compelled nor inspired them to create decent jobs.

The new normal for the official unemployment rate is around 8%, and the official figure is that low only through a series of redefinitions of unemployment. There are many more statistics that tell us we have not regained prosperity by relying on "job creators."

Instead, real wages were stagnant for decades, followed by a steep decline starting about 5 years ago. The decline continues, and will get worse with the balanced budget austerity programs that are coming. Most ordinary people do not need to refer to statistics to know this is true, because we have experienced both the decline in real wages and the decline in wealth caused by the crash of the real estate market.

There was a time when increasing home values seemed to signal prosperity for all. That bubble burst a few years ago. Record low mortgage rates have been unable to restore home values to anything like their record highs.

Banks commonly delay foreclosing on homes in default, so they can lie about the value of the mortgages on their books. They also commonly withhold foreclosed homes from the market, so they can lie about the value of those homes. Both sorts of lie make their balance sheets look better than the reality. The strategy has a  name:  "Extend and Pretend."

Individuals considering buying a home estimate how much they can afford for a monthly mortgage payment. That sets the price range for houses they consider. If the record low mortgage rate ticks up, the payment for a given price will go up significantly. The price for every house on the market has to come down correspondingly, or housing sales drop significantly, or both. That means any slight increase from today's record low mortgage rates will lower home values generally. There is no prospect for recovery based on a robust housing market.

There is also no realistic prospect of long-term economic growth restoring the prosperity we might remember from the 1950s and 1960s. All the king's horses and all the king's men have been unable to get the real economy growing again. We seem to be stuck on the business as usual scenario sketched out forty years ago in "Limits to Growth":  depleted resources and a degraded environment causing a declining economy. In particular, it is causing the end of the American Empire, A.K.A "globalism."

Our elected leaders are telling us about the "fiscal cliff" to persuade us to go along with their plans for our austerity. If they can convince us their version of a crisis is real, perhaps we can be persuaded to go along with further erosion of our rights plus further erosion of our incomes, in the name of their definition of "national security."

The declining economy plus austerity means drastic declines in living standards for most of us, while the 1% are insulated from the worst effects and can even get richer by exploiting our increasing poverty. That's the meaning of austerity programs currently being forced on the people of Greece and Spain and elsewhere. One way or another, it seems, we will get an austerity program forced on us, unless we can resist it.

The Occupy movement is one form of resistance. Occupiers will support any other nonviolent form of resistance that promises to be effective. Any ideas?

Art Myatt