Australian Politics Forum - The Fiscal Cliff

perceptions_now

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The Fiscal Cliff
Jan 1^st, 2013 at 10:33pm

The Fiscal Cliff & what it Really means

Background articles follow -
http://edition.cnn.com/2013/01/01/politics/fiscal-cliff/index.html
http://www.nytimes.com/2013/01/01/opinion/a-tepid-agreement-on-the-fiscal-cliff....
http://news.xinhuanet.com/english/world/2013-01/01/c_132075574.htm
http://www.theaustralian.com.au/business/us-closes-in-on-budget-deal/story-e6frg...

Essentially there are two choices, for Politicians & Central Bankers in the USA, but also elsewhere, specifically in respect of the so called Fiscal Cliff, but also for Economics in general -

1) Continue to allow Debt to escalate, in an attempt to stimulate Growth, until that one final hair that breaks the camels back or in this case, breaks the entire Global Financial system, including the Global Currency system.

2) Accept that the Economic Status quo of Continuous Growth, is now dying and implement changes to the system, which focuses on Productivity AND which realigns Revenue & Expenditure, to fit the new realities of our changing Global Demographics, Energy Supply & Costs & our changing Global Climate.

Irrespective what choice/s may be made initially, in the US regarding the “Fiscal Cliff”, it will become apparent that US Politicians can not fix, that which is already broken and the US Economy will re-enter Recession, as Demand & Consumption again start to slide & the size of that slide will depend on the size of the Debt reduction, the composition of the Revenue & Expenditure changes & the extent to which all of those changes go towards lifting real Productivity or whether the changes are merely cosmetic.

The real dilemma in the US, as it was & is, in Japan & largely is & will continue to be, in Europe, is that Growth will not return, as it has done in almost all other Economic downturns in the modern Economic era, because certain major Economic drivers are now in the process of reversing AND therefore the tried & tested remedies of Stimulation &/or AUS-terity will also be to no avail!

There are a number of factors why Growth will not return, BUT the major factors are –
1) Baby Boomer Demographics
The Boomers are the largest cohort in US (around 80 million) & Global (1.75-2 Billion) history and they have already commenced a lengthy process aimed at achieving maximum possible Retirement assets, with which to fund Retirement, before moving to a much more frugal lifestyle and then finally leaving us forever over the next 20-30 years.

This would “normally” have severely reduced Demand on a large range of Products & Services, given the massive size of the Boomers generation. However, the circumstances now faced by the Baby Boomers and following generations, are far from normal!

Whilst many were set to rely on Government Pensions, they may now find those Pensions have NOT been funded by past Taxes AND any reasonable Pensions may be difficult to maintain, given the likely downward trend, of the Worker to Non Worker participation rates in the US & Globally, as can already be seen in some European countries, such as Greece.

Many others, thought they had acquired enough assets, to fund their own Private Retirement Superannuation, BUT the initial phase of the GFC took a BIG bite out of those assets, primarily in the Shares & in some countries already, in the Real Estate markets.

Many, may still have thought they would have enough, by relying on a reasonable return on their investments, however those investment returns are now heading down or already at rock bottom & they will remain very low for quite some time, due to problems funding the US Debt & other countries with large Debts.

AND, of course, the entire Boomer Retirement process actually requires removing very large amounts OUT OF THE FINANCIAL SYSTEM, TO PAY FOR THE BOOMERS TO LIVE, thus providing another downgrade to Growth in the Financial system.

However, by far the greatest impact is saved, for WHEN THE BOOMERS START LEAVING US, IN INCREASING NUMBERS & DEMAND & CONSUMPTION START TO CRASH, BIG TIME, AS THE TOTAL POPULATION ACTUALLY GOES INTO DECLINE, WITH BIRTH RATES IN SERIOUS DECLINE & THE DEATH RATE (owing partially to Boomers), RISING SUBSTANTIALLY!

In fact, that deterioration, because of the aging of the population has already started. It started, as the Baby Boomer Boom ended around 2006, as Global Birth rates continued to Decline and the largest generation in human history (Baby Boomers) also started going into its pre-retirement saving mode, it then moved onto a much more Frugal Spending mode and into actual Retirement, for which the first of the “official” Boomer retirements started on January 1st, 2011.
http://endoftheamericandream.com/archives/in-2011-the-baby-boomers-start-to-turn...
The final act of this Drama, will see Boomers leaving us forever, in increasing numbers, over the next 20-30 years, which will likely send the Global Population into actual Decline, THUS DRAMATICALLY REDUCING GLOBAL ECONOMIC DEMAND, CONSUMPTION & GROWTH!

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« Last Edit: Jan 2^nd, 2013 at 10:37pm by perceptions_now »

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perceptions_now

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Re: The Fiscal Cliff
Reply #1 - Jan 1^st, 2013 at 10:49pm

The Fiscal Cliff & what it Really means (Cont)

As part of this process, the Boomer generation will impose massive additional costs in areas relating to -
1) Removing massive savings from the financial system (both Government & Private), to fund their retirement.

2) Massive addition Pension costs, which Governments will have to bear, at a time when the worker to non worker ratio has slumped from about 8/1 in 1950, to about 2/1 in 2040, THUS drastically overloading the call on current workers to pay more taxes.

3) Massive additional costs to the Health Care system, which will struggle to provide the number of qualified Health Care workers &/or the funding required for the rapidly aging & consequently less healthy Boomers.

So, to say that this time is different is a gross understatement, just due to Demographics, BUT there are also other major factors that are also coming to play.

2) Declining EROEI on Energy
Whilst Global Demographic issues are raging, there are also other dilemma's, primary of which is the Declining EROEI (Energy Return On Energy Invested), which has been falling for quite some time, BUT that Decline has escalated seriously over the last decade or so.

Both Crude Oil & Coal are steadily moving towards a higher cost per capita & a lower EROEI, with Production costs rising, whilst the NET Energy Produced is in serious Decline.

Other forms of Energy have come under consideration & that situation will continue to evolve. However, one of the primary candidates, particularly for base load Energy production, has recently taken a hammering to its reputation & Nuclear Energy is likely to take some time to recover, if indeed that is possible, after the Japanese Tsunami experience in March 2011.
http://en.wikipedia.org/wiki/Fukushima_Daiichi_nuclear_disaster

Other Non-Conventional Energy, such as Shale Oil/Gas or Tar Sands may provide some assistance, BUT their EROEI is much lower than the old Conventional Oil, therefore the costs will be much higher AND their Production in sufficient volume, to replace the old Conventional Oil Product is in great doubt!

The overall effect from an Energy perspective is that Energy Costs will continue to rise in the longer term, after a short Decline owing to the immediate effects of the returning GFC. Those longer term Cost increases mean that CONSUMER DISPOSABLE INCOME WILL CONTINUE TO DECLINE FOR QUITE SOME TIME, thus seriously stressing Consumer Demand & Consumption!

3) Climate Change
The last of the major factors, why Growth will not return, is that our relatively benign Climate conditions are ending, as both nature & Humanity push towards the Peak of the current Global warming trend.

There is a great deal of argument over whether our current Climate Change is caused by man or simply part of the planets long term trend, BUT frankly that is largely irrelevant, as change is upon us & it is impacting already, to some extent, on Agricultural Production, which is again causing lower Production in some Agricultural Products and Cost increases, which again will lessen the Public Disposable Income.

BUT, more importantly, it will also cause Food & Fresh Water shortages, which will impact severely on those who can least avoid it and cause the Death rate to rise sharply in many third world countries.

That said, I believe that the argument/s put by the bulk of Scientists, particularly those who specialise in the Climate area, are likely to be found to be largely correct, that we (humans) are hastening the natural cycle AND therefore, we should take any & all measures possible, to mitigate against the worse likely outcomes, as some of those worst outcomes could change everything!

Now, I have said all of that, to simply to validate why I now say this –
Economic Growth can not return to the usual Status quo and we need a new game plan, as the rules of the game, indeed the game itself, has changed!

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« Last Edit: Jan 2^nd, 2013 at 10:49pm by perceptions_now »

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perceptions_now

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Re: The Fiscal Cliff
Reply #2 - Jan 1^st, 2013 at 11:04pm

The Fiscal Cliff & what it Really means (Cont)

So, as I said earlier, irrespective what choice/s may be made initially, in the US regarding the “Fiscal Cliff”, it will not change the final outcome and the real dilemma is that no matter what decision/s there may be, Growth can not return.

In other words, IF US Politicians & those elsewhere, only take small steps to increase Tax & Reduce Expenditure, THEN they will allow Debt to continue to escalate quickly, they will also prevent any return to “normal” interest rates, any time soon.

At some point, in the not too distant future, expanding US & Global Debt levels would trigger a collapse in the Economic house of cards, including the US currency system, notwithstanding that the US$ is currently the World Reserve currency and that would send the US & Global Economy into a serious Depression, with Markets performing accordingly.

However, the alternative is that, IF US Politicians & those elsewhere, take wide & sweeping measures, to increase Tax & Reduce Expenditure, to allow Debt to try to return to “normal” levels, within say a decade, THEN they would need to run at levels roughly equating to a balanced budget, for each of the next 10 years.

In the case of the US that would mean a turnaround of around $1 Trillion in 2013 alone and something similar for each of the next 10 years.

The net effect of those sorts of measures, plus the knock on effects, would dramatically impact DEMAND, CONSUMPTION & GROWTH. That would see a Decline in US GDP of something around 6-7% during 2013, something similar in the years ahead and that would send the US & Global Economy into a serious Depression, with Markets performing accordingly.

So, as I said earlier, whatever the initial choice/s may be made regarding this “fiscal cliff”, the likely end results, will be very, very similar, unless the Politicians wake up to the fact that they are now in an entire new game AND the Politicians need to start playing according to the new rules, which is going to mean a LOT MORE REAL CO-OPERATION & A LOT MORE SELECTIVITY IN HOW TO ACHIEVE HIGHER PRODUCTIVITY & HOW TO BEST PERFORM IN A LOW, NO OR NEGATIVE, GROWTH ECONOMY.

Whatever the initial market reactions will be, to what is eventually passed, if anything is passed, by both the US Senate & Congress, will depend on the markets perceptions of what is announced AND that could range from a large gain, to a large fall, BUT irrespective of what those initial reactions may be, the actual outcomes during 2013-2014 are likely to see very significant Share & R/E Declines & very significant Declines in Economic activity, not just in the USA, but Globally.

In fact, IF these cretin Politicians had conspired amongst themselves, over these past 3-4 decades, THEY COULD NOT HAVE ARRIVED AT A BETTER LAID PLAN & TIMING, IF THEIR INTENTION WAS TO CRIPPLE THE US & GLOBAL ECONOMY!!!

So, I wish you all Good Luck and to all of you I say, watch the Debt, Grow!

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Maqqa Gold Member Offline 14% - that low?! Posts: 16000	Re: The Fiscal Cliff Reply #3 - Jan 1^st, 2013 at 11:37pm I love the words used by alarmists Fiscal CLIFF Cliff represents death Facts are the sun will come up on Wednesday US time. Even if they went over this cliff - they will survive The same wordsmiths use terms like (1) Climate Change DENIERS (2) Peak Oil (3) Racist to describe a situation that is irrelevant to the words used
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Ex Dame Pansi

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Re: The Fiscal Cliff
Reply #4 - Jan 2^nd, 2013 at 6:17am

Thanks for that Perceptions. Some questions, if I may.

Does congress have to have this same debate in February? I understand it's only a temporary measure.

Is this only a stalling tactic to give them time to do? something? just kicking the can further down the road, like they have been since 2007.

I heard that February is the month that the debt ceiling needs to be attended to, what part will this play?

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"When the power of love overcomes the love of power, the world will know peace." Hendrix
andrei said: Great isn't it? Seeing boatloads of what is nothing more than human garbage turn up.....

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Supermatt New Member Offline Australian Politics Posts: 31 Gender:	Re: The Fiscal Cliff Reply #5 - Jan 2^nd, 2013 at 9:14am One day soon the straw will break the Camel's back and USA will become the next Greece. The difference being Germany will not bail out the USA. What has happened in Japan for the last 20 years is about to playout globally. Bring it on.
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perceptions_now

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Re: The Fiscal Cliff
Reply #6 - Jan 2^nd, 2013 at 11:59am

Maqqa wrote on Jan 1^st, 2013 at 11:37pm:

I love the words used by alarmists

Fiscal CLIFF

Cliff represents death

Facts are the sun will come up on Wednesday US time.

Even if they went over this cliff - they will survive

The same wordsmiths use terms like

(1) Climate Change DENIERS
(2) Peak Oil
(3) Racist

to describe a situation that is irrelevant to the words used

IF you don't like the term "Fiscal Cliff", I suggest you take it up with Ben Bernanke -
"In late February 2012, Ben Bernanke, chairman of the U.S. Federal Reserve, popularized the term "fiscal cliff" for the impending 2012 fiscal crisis. Before the House Financial Services Committee he described that "a massive fiscal cliff of large spending cuts and tax increases" would take place on January 1, 2013."
http://en.wikipedia.org/wiki/United_States_fiscal_cliff

As for "the Facts", the Economic Facts are as I have written, should you care to debate the merits of my interpretations, go ahead, make my day!

That said, whether the sun rises or not, is irrelevant to those facts.

Btw, Yes, people will survive, BUT it is likely that we will all be losers, on the Economic well being front!

I would agree, all those words seem fairly accurate for their intended use!

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perceptions_now Gold Member Offline Australian Politics Posts: 11694 Perth WA Gender:	Re: The Fiscal Cliff Reply #7 - Jan 2^nd, 2013 at 1:15pm Supermatt wrote on Jan 2^nd, 2013 at 9:14am: One day soon the straw will break the Camel's back and USA will become the next Greece. The difference being Germany will not bail out the USA. What has happened in Japan for the last 20 years is about to playout globally. Bring it on. Largely, BUT with some variations! WHY?
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perceptions_now

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Re: The Fiscal Cliff
Reply #8 - Jan 2^nd, 2013 at 1:28pm

Ex Dame Pansi wrote on Jan 2^nd, 2013 at 6:17am:

Thanks for that Perceptions. Some questions, if I may.

Does congress have to have this same debate in February? I understand it's only a temporary measure.

Is this only a stalling tactic to give them time to do? something? just kicking the can further down the road, like they have been since 2007.

I heard that February is the month that the debt ceiling needs to be attended to, what part will this play?

The way they are going, they will be having this "conversation" all year, BUT I suspect that the can kicking days will end, sometime between now & the end of 2014!

Yes, they (the US) have just exceeded their legislated Debt Limit seems there is "some" leeway to continue with "business as usual", whilst the US Pollies sort out what they will do with their Debt Limit, BUT the indications are up to or around a couple of months, to sort it out.
http://money.cnn.com/2012/12/31/news/economy/more-fiscal-cliffs/index.html?iid=E...

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Supermatt

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Re: The Fiscal Cliff
Reply #9 - Jan 2^nd, 2013 at 3:20pm

perceptions_now wrote on Jan 2^nd, 2013 at 1:15pm:

Supermatt wrote on Jan 2^nd, 2013 at 9:14am:

One day soon the straw will break the Camel's back and USA will become the next Greece. The difference being Germany will not bail out the USA.

What has happened in Japan for the last 20 years is about to playout globally.

Bring it on.

Largely, BUT with some variations!

WHY?

Because the greedy Generation must experience true despair. Only those who live beyond their means need fear the Fiscal Cliff.

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John Smith

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Re: The Fiscal Cliff
Reply #10 - Jan 2^nd, 2013 at 3:41pm

Supermatt wrote on Jan 2^nd, 2013 at 3:20pm:

perceptions_now wrote on Jan 2^nd, 2013 at 1:15pm:

Supermatt wrote on Jan 2^nd, 2013 at 9:14am:

One day soon the straw will break the Camel's back and USA will become the next Greece. The difference being Germany will not bail out the USA.

What has happened in Japan for the last 20 years is about to playout globally.

Bring it on.

Largely, BUT with some variations!

WHY?

Because the greedy Generation must experience true despair. Only those who live beyond their means need fear the Fiscal Cliff.

so you are in favour of removing all middle class welfare, are you supermutt?

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Our esteemed leader:
I hope that bitch who was running their brothels for them gets raped with a cactus.

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MOTR Gold Member Offline Australian Politics Posts: 6646	Re: The Fiscal Cliff Reply #11 - Jan 2^nd, 2013 at 8:57pm
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perceptions_now

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Re: The Fiscal Cliff
Reply #12 - Jan 2^nd, 2013 at 9:10pm

Supermatt wrote on Jan 2^nd, 2013 at 3:20pm:

perceptions_now wrote on Jan 2^nd, 2013 at 1:15pm:

Supermatt wrote on Jan 2^nd, 2013 at 9:14am:

One day soon the straw will break the Camel's back and USA will become the next Greece. The difference being Germany will not bail out the USA.

What has happened in Japan for the last 20 years is about to playout globally.

Bring it on.

Largely, BUT with some variations!

WHY?

Because the greedy Generation must experience true despair.

Only those who live beyond their means need fear the Fiscal Cliff.

Which is the greedy generation?

You may find that, ain't necessarily so?

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perceptions_now Gold Member Offline Australian Politics Posts: 11694 Perth WA Gender:	Re: The Fiscal Cliff Reply #13 - Jan 2^nd, 2013 at 9:11pm MOTR wrote on Jan 2^nd, 2013 at 8:57pm: http://0.tqn.com/d/politicalhumor/1/0/E/1/5/Fiscal-Cliff-vs-Climate-Cha.jpg Well, I agree, the climate issue certainly has the capacity, TO BE A GAME CHANGER!
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MOTR

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Re: The Fiscal Cliff
Reply #14 - Jan 2^nd, 2013 at 9:27pm

perceptions_now wrote on Jan 2^nd, 2013 at 9:11pm:

MOTR wrote on Jan 2^nd, 2013 at 8:57pm:

http://0.tqn.com/d/politicalhumor/1/0/E/1/5/Fiscal-Cliff-vs-Climate-Cha.jpg

Well, I agree, the climate issue certainly has the capacity, TO BE A GAME CHANGER!

I don't see the debt being a catastrophic problem in the short run. The solution is more likely to create immediate economic problems. What sort of time frame are you looking at?

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Hunt says Coalition accepts IPCC findings

"What does this mean? It means that we need to do practical things that actually reduce emissions."

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