Why There Was No Fiscal Cliff Deal This Week

Picture a skinny 18-year-old with a high metabolism. He can eat anything he wants -- doughnuts, ice cream, pizza -- with virtually no harm. His weight stays the same, his blood pressure remains low, and he faces no immediate risk of heart disease. So he keeps on gorging. Why change when the food tastes this good?

Later in life, this catches up with him, and he puts on a few pounds. Unsettled, he tries dieting and exercises more. His growing waistline now serves as an incentive to change habits.

Then, in his 60s, he has a heart attack. He survives, but he's terrified. He hires a nutritionist and a personal trainer, and downs a daily cocktail of pills to keep his heart ticking. His near-death experience is a powerful incentive to drastically change behavior. His life depends on it.

This is an appropriate analogy to understand why the fiscal cliff debate has dragged on so long. America's finances are not the 60-year-old heart attack victim, highly incentivized to change behavior. We are the 18-year-old with the fast metabolism, loving our bacon cheeseburgers with no current incentive to do anything differently.

Two events -- and only two events -- will prod legislators into wide-reaching, permanent budget reform: Rising interest rates, or the threat of not being re-elected. Both are (for now) completely out of sight. 

Take interest rates. They're currently at all-time lows. The impact this has on financing government deficits is massive. In 1995, the national debt was $4.8 trillion and interest payments were about $230 billion. In 2011, the national debt was $15 trillion and interest payments were about ... $230 billion. We tripled the national debt without paying a penny more in annual interest. Interest payments on the national debt as a percent of GDP are at multidecade lows.

And interest rates on Treasuries are now below the rate of inflation, so in real terms, creditors are actually paying the government to borrow. Why would any congressman choose to stop spoiling their constituents with borrowed money when there is no (current) cost of doing so? As long as the market is this friendly, the odds of comprehensive budget reform are extremely low.

Next, consider this statistic from Campaign for Primary Accountability: "During the past decade, House incumbents were as likely to die in office as to lose a primary election." Despite record-low approval ratings, the reelection rate of politicians is off the charts. According to Bloomberg, "90 percent of House members and 91 percent of senators who sought reelection in 2012 were successful." That wasn't a fluke. Re-election rates have rarely dipped below 70% or 80% for the last half-century. Long-term deficit deals could get done with low interest rates if the mechanism for keeping politicians in line -- elections -- enforced discipline. Alas, they rarely do.

The last time we had comprehensive budget reform was 1993, when taxes were raised by $240 billion, and spending cut by $250 billion. The political climate then was no more friendly than it is today. The key difference was that interest rates were rising, with yields on 10-year Treasury bonds jumping by 3 percentage points in just over a year. That prodded legislators into action. Former Clinton advisor James Carville quipped at the time:

I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.

It's totally different today. The U.S. bond market hasn't intimidated anyone in more than a decade. If anything, it is begging legislatures to keep borrowing. 

Someday that will change. Interest rates will rise, markets will protest, and then -- and only then -- will there be comprehensive budget reform. No one knows when that day will come. It could be tomorrow or decades off. When it does, it will likely be the equivalent of weight gain or even heart attack, prompting quick action -- a reality that actually makes me optimistic. Until then, expect more symbolic, short-term budget deals, more bickering, and more fiscal cliffs. There is no incentive for anything else.

As Charlie Munger put it: "Never, ever, think about something else when you should be thinking about the power of incentives."

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics. 

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  • Report this Comment On December 27, 2012, at 1:39 PM, mdk0611 wrote:

    If reelection rates dropped to even 70% it would be a positive. With the gerrymandering of the last 40 years done by BOTH parties, they're much more worried about being "primaried", be it. And even without the gerrymandering, the same holds true for the Senate. Just ask Joe Lieberman and Dick Lugar.

  • Report this Comment On December 27, 2012, at 3:17 PM, swindlersb wrote:

    Morgan,

    Thanks for your thoughtful comments as always. I wish we would stop using the term "cliff" to describe what's going on. It presupposes that tax hikes/budget cuts is a bad outcome to be avoided at all costs. I favor a smaller government but we don't have one and we need to do a better job paying for a government as large as we have. We can't just take more money from the top 5% or, worse, steal the future of my preschool and elementary school-age kids to pay our current government. We all have to pay more, Laffer-curve be damned. Expiration of the present tax rates won't be the end of the world.

  • Report this Comment On December 27, 2012, at 3:33 PM, mdk0611 wrote:

    swindler - What you're overlooking is the little known consequences of the games they are playing. If nothing is done about the AMT "patch" for 2012, millions of middle class and upper middle class taxpayers will get a nasty (up to several thousand dollar) suprise when their 2012 returns are prepared.

    You say that it can be corrected retroactively? Well, IRS says if it is not done by 12/31 they are going to have to program the system based on current law. If the patch is passed in 2013, the reprogramming means that they may not be able to process returns or mail refunds before March.

    These games have real consequences, but the 2 branches of govenrment playing them seem to be immune from any of them.

  • Report this Comment On December 27, 2012, at 3:45 PM, swindlersb wrote:

    mdk, I understand but we've had 4 years of trillion-plus deficits. The nasty surprise you mention will hurt us (individually and as a nation) in the short run but not as bad as this debt overhang will in hurt the long run. Of course, I'm not subject to AMT, have a defense job which isn't threatened even in the worst case scenario, and have those kids to think of. If I were in a different place on any of those fronts, I might have a different perspective.

  • Report this Comment On December 27, 2012, at 9:26 PM, harmonyjoe wrote:

    MDK/SWIND-- If I'm wrong I apologize and accept ten lashes from a wet noodle, but why should failure to solve the fiscal crisis have any bearing on this year's tax returns? nothing I've heard indicates this problem should have any retroactive effects. Am I right or am I wrong?

  • Report this Comment On December 28, 2012, at 2:59 AM, hotpepperaddict wrote:

    OF the people, BY the people, and FOR the people. Anyone remember those words? Certainly those who make the laws do not. They think it says of the POLITICIANS, by the POLITICIANS and FOR THE POLITICIANS.

    AMERICA, WAKE UP!!!!! and stop re-electing these nincompoops. They obviously don't give a rip about us. I guarantee you their ASSets are well protected while the rest of America is left flapping in the breeze.....

    Mark

  • Report this Comment On December 28, 2012, at 9:05 AM, mdk0611 wrote:

    harmonyjoe - A part of any deal that would have passed would have extended the "AMT patch" which expired on 12/31/11. The patch extended the higher exemption amounts used in calculating the AMT for the last few years. Because of that, millions of taxpayers will calculate their AMT using the lower exemption amounts resulting in an AMT up to $4000 higher that what it was on their 2011 tax returns.

  • Report this Comment On December 28, 2012, at 2:26 PM, tnk4800 wrote:

    The truth is that what we will all experience will be a its a fiscal slide. What all politicians can't seem to see is the political cliff they are about to jump off.

    Expect a revolution. Accumulate gold and silver.

  • Report this Comment On December 28, 2012, at 5:46 PM, 25okt17 wrote:

    Housel misses the strength of spite as a motivator. The tea-party Republicans are behaving like predators who defecate over a kill they've had their fill of in order to make it inedible to any other beasts.

    This is what happens when political radicals who misread political history and couldn't pass EC101 have effective veto power.

  • Report this Comment On December 28, 2012, at 5:51 PM, LQM2 wrote:

    The government keeps borrowing. Why aren't interest rates going up?

  • Report this Comment On December 28, 2012, at 5:56 PM, dion2727 wrote:

    Great article.I sum it up a little differently.It is our insatiable individual and collective greed.Politicians are the fools we elect to satisfy our greed.

  • Report this Comment On December 28, 2012, at 6:07 PM, dion2727 wrote:

    great article.to sum up we are individually and collectively greedy and we select political fools to satisfy our greedy nature.

  • Report this Comment On December 28, 2012, at 6:08 PM, 25okt17 wrote:

    "The government keeps borrowing. Why aren't interest rates going up?"

    Remember all the monetarists' arguments in the 70's, 80's, 90's, etc. presented with conviction bordering on revealed truth about government deficits "crowding out" private borrowing? It's taken all these decades for it to be revealed that the monetarist emperor maybe has clothes but is certainly running around in his underwear.

  • Report this Comment On December 28, 2012, at 6:32 PM, HerrGlock wrote:

    AWWW.....won't be able to get your refund until MARCH......to darn BAD

  • Report this Comment On December 28, 2012, at 6:46 PM, mountain8 wrote:

    I voted against every incumbent running for office. I will for the next several elections.

  • Report this Comment On December 28, 2012, at 7:12 PM, SkepikI wrote:

    hmmm, I wonder if there is a re-election bubble? This sounds for all the world like the litany from the dot com bubble, or the real estate bubble or banking bubble or the.... yes, the incentives rule right up until they don't anymore and economics or physics or what ever fundamental rules apply take over. Always a temporary "exception" like the guy who leaped off the 20 story building and remarked at the 15th floor, gravity, what gravity? things look ok so far...

  • Report this Comment On December 28, 2012, at 8:09 PM, connectr2 wrote:

    A return to the 1960 tax rates is what we need and more borrowing to build the crumbling infrastructure of the US. Did everyone forget that the greatest advances in business and the US economy came while we were so busy actually sending folk to school and building roads that we didn't worry about the debt. Once the country has better infrastructure and better trained folk, the jobs will return with a vengeance and the debt will be paid easily.

  • Report this Comment On December 28, 2012, at 8:20 PM, tomd728 wrote:

    I'm with you Mountain...these clowns forgot who pays them and it has taken this deficit issue to show the people just how self-serving they are.

    This excellent piece by Mr.Housel is but a back story to what has gone on here.

    They should be tarred,feathered and run out of D.C. on a rail..start with the "Laughing VP" Joe Biden.Biden's contempt for matters fiscal were shown in vivid color during the debate with Ryan.

    Anyone checked in with Charlie Rangel lately or is that N.Y. felon still chirping about Social Security as an issue in this mess ?

  • Report this Comment On December 28, 2012, at 8:31 PM, jomueller1 wrote:

    Fear is a bigger motivator than incentives. All those m o r o n s are afraid they may not get all the money from Rover or the NRA or Karl. They are afraid of losing their status and their perks and their power.

    It is about time to re-invent the US. corruption is to be punished by death. The voting system needs to move away from "the winner takes all" and five or more parties should represent the people. Voting district Gerry-meandering is to be outlawed. The supreme court should not be manned by presidential cronies but become independent.

    The current Congress should be sent on a long lasting trip to St. Helena. New members of Congress should have one term only of 5 or 6 or 7 years. Tradition does not work any more, so forget it.

  • Report this Comment On December 28, 2012, at 11:09 PM, TxWedge wrote:

    Seems like simple math to me. The USA has had some bad years and needs income. Okay, let's ALL share the pain with higher tax payments. That's ALL, not the top 2% nor the bottom 47%--ALL. Then, when we get on solid footing, we get a "raise" via lower taxes.

    Next, we address the spending problem, which is the bigger issue. Defense cuts? Of course. There's so much waste that most cuts won't even be felt and they should be felt. Entitlements are no brainers. They must be addressed and changes made and implemented in real time, not some mythical time in the future. That holds true for all cuts--they must be current, not "later."

    Finally, I concur with the comments about voting for any incumbent. Meets the definition of insanity.

  • Report this Comment On December 28, 2012, at 11:56 PM, depsee wrote:

    TxWedge

    I think you have a good point but you are off base with the fact that spending is way out of control and that issue needs to be addressed first. Next look at possible ways to raise more money.

    Connectr2

    I think your p'ing in the wind with that idea. Its not 1960 America any more. Remember WW2 ended in 1945. The United States came out of that with the biggest, most powerful industrial base ever while most of the rest of the world lay in destruction. We held that advantage through the 1960's. That started slipping in the 70's as the rest of the world rebuilt and established industries. At the same time we had unions strong arming U.S. companies that these overseas operations didn't have to deal with. In the end a lot of U.S. based companies outsourced to other countries to survive.

    As long as the Unions are active in the U.S. it will be impossible to compete with overseas operations. You commented about education. Looks like a lot of these other countries are educated. I don't see how our people being a little book smarter will pull millions of jobs from overseas while those people are just as smart and work for half price.

  • Report this Comment On December 29, 2012, at 2:39 AM, carefulinvestor wrote:

    Simple steps:

    1. Force reductions in defense and homeland security spending. It is out of control and 10 years of Middle East sabre rattling has achieved nothing.

    2. Restore the FICA tax rate and adjust the full retirement age to be consistent with existing life-expectancy.

    3. No unemployment extensions beyond a year. Offer incentives to businesses to hire and re-train long-term unemployed. Make SSDI qualification harder, so that it is not a substitute to fund the long-term unemployed.

    4. Adjust the Medicaid asset threshold for inflation. This $2000 limit has not been adjusted in 40 years! Do you know how hard it is to manage the finances of the elderly on $2000? Unfortunately, I do (Dad's stroke decimated parent's finances).

    5. Defund Obamacare. Make able-bodied people earn the right to good healthcare. No more free-loaders.

    6. Elimate the capital gains tax rate. All income (including employee stock options) is taxed at the same marginal rate. Index asset cost basis for inflation. Taxes will be based on real (inflation-adjusted) appreciation of assets. The incentive to pay executives with barrels full of stock options evaporates.

    7. Simplify the tax code. Eliminate the AMT. If necessary, adjust marginal tax rates instead. Keep deductions for home mortgages, charitable giving, and state taxes ( why pay taxes on money used to pay taxes?). Educational tax credit available to everyone (no maximum income threshold).

    8. Decrease government spending by 1% for every 1% increase in the marginal tax rate. Adjust the marginal tax rate for everyone - not just for a select few. According to the CBO, the top 10% of income earners already pay 59% of federal income taxes. Is more fair, Mr. Obama?

  • Report this Comment On December 29, 2012, at 2:50 AM, carefulinvestor wrote:

    Politics:

    Despite its obvious flaws and the power of incumbency, do you really want the three- or six-party system of Canada, Italy, or Greece?

    One productive tweak might be to revise House and Senate rules that would reduce the influence of the ruling party on committee appointments. The only way to do that is through the Supreme Court, since the ruling members of the House and Senate wouldn't vote for that. It would require a Constitutional legal challenge to the current committee appointment system. Difficult to find grounds for that, however.

  • Report this Comment On December 29, 2012, at 3:43 AM, seattle1115 wrote:

    depsee wrote: "As long as the Unions are active in the U.S. it will be impossible to compete with overseas operations."

    I had always wondered why Germany's economy was in such tatters. Now I know. [rolls eyes]

  • Report this Comment On December 29, 2012, at 5:17 AM, WobblyWorldFool wrote:

    If the Politicians were to turn into lemmings,small rat-like animals, and lets face it most are, they could do as lemmings do when face to face with

    a cliff..Run headlong over over it !!! DhOooo!!

    It may not solve America's finances but it would be a great U-tube video..

    As jomueller1 wrote: 'It is about time to re-invent the US. Corruption is to be punished by slow death. The voting system needs to move away from "the winner takes all" and five or more parties should represent the people. Voting district Gerry-meandering is to be outlawed. The supreme court should not be manned by presidential cronies but become independent.'

    If nothing else this would be a good start..

    So here's to a new start and the best of Foolish

    Wishes, too fellow Fools, in the coming New Year!!

    Toodle Pip...

  • Report this Comment On December 29, 2012, at 6:13 AM, skypilot2005 wrote:

    On December 28, 2012, at 5:46 PM, 25okt17 wrote:

    “Housel misses the strength of spite as a motivator. The tea-party Republicans are behaving like predators who defecate over a kill they've had their fill of in order to make it inedible to any other beasts.

    This is what happens when political radicals who misread political history and couldn't pass EC101 have effective veto power.”

    Republican “political radicals”? Ya. Right.

    After four years, Obama owns this economy.

    Put down the Kool-Aid.

    Sky

  • Report this Comment On December 29, 2012, at 7:48 AM, cupocoffee wrote:

    To Careful Investor..........your comments are a beacon of common sense ............what chance wll they have?

  • Report this Comment On December 29, 2012, at 9:24 AM, Fokker99 wrote:

    I hate to spoil the "throw the bums out" party, but what makes you think new fresh politicians would be any different? Without serious structural and systematic election reform, campaign reform (including PACs), a viable 3rd party, and redistricting reform NOTHING will change. Just the same continual circus even with different clowns.

  • Report this Comment On December 29, 2012, at 9:32 AM, 25okt17 wrote:

    carefulinvestor, I would argue with one of your prescriptions:

    "2. Restore the FICA tax rate and adjust the full retirement age to be consistent with existing life-expectancy."

    A. In addition to restoring the payroll tax rate, the cap on eligible earnings MUST be raised or eliminated.

    B. If you dig into the statistics, the life expectancy of people whose income suggests they will be the most dependent on Social Security is virtually unchanged over the last 30-40 years. Raising the retirement age will save very little money and will come at the expense of the most vulnerable.

  • Report this Comment On December 29, 2012, at 9:42 AM, LAVol wrote:

    I'm not a republican or democrat. It seems the only people striving to curb spending (eating cake, burgers, etc.) are the republicans. Even with the Hurricane Sandy Relief bill, the dems loaded it with pork to the point where the reps said, "no". The dems steadfastly refuse to cut entitlement programs. And, the one fault I find with the reps is they refuse to cut defense spending (do we really need military in 120 countries?). Both parties have to be blamed for the mess we're in, but I think we have to lay most of the blame at the feet of the dems for not making a valid effort to curb the spending appetite of congress. They are doing nothing to fix the problem. (Raising taxes on the "rich" won't fix it--it's only class warfare to make the dems look better with the ignorant voters. The "middle class" will have to pay most of the bill. There is no other way).

  • Report this Comment On December 29, 2012, at 11:40 AM, JadedFoolalex wrote:

    carefulinvestor:

    You say your 2-party system is better than Canada's, Greece's and other countries yet I see little political gridlock happening in those countries!! Why is that? Could it be that multiparty systems allows everyone to voice an opinion yet still gets what needs to be done, done? Or are you just envious that the rest of the World isn't stuck with a bunch of thieves who fill their pockets yet clean out yours?

  • Report this Comment On December 29, 2012, at 12:33 PM, bluesharpbob wrote:

    Good article,but it neglects to mention that in 2010 many incumbents in congress lost to Tea Party backed candidates-most of whom only increased grid lock & made things worse. I was glad to see some,like Alan West ,get the boot in the last election. I like my congressman, his position on the major issues is the same as mine. I wouldn't feel the same if I was being represented by Michelle Bachman,etc. When you have whack jobs like her & her ilk to deal with,getting anything worthwhile done will always be a challenge!

  • Report this Comment On December 29, 2012, at 1:33 PM, NOTvuffett wrote:

    Way to go Team Obama!

    Your intransigence on linking tax hikes to meaningful spending cuts has caused the market to take a dump on Friday, giving all of us fools buying opportunities.

    While in many families it is the men that bring home the bacon, it is the women who decide where, when and how to cook it. Women took a leading role in organizing the leader-less, grassroots tea party movement. To my surprise, the wife of a chemical salesman that calls on me was one of the people that organized a near-by tea party rally.

    Words of wisdom for the young: never fry bacon in the nude. lol

  • Report this Comment On December 29, 2012, at 1:42 PM, LAVol wrote:

    People are talking about gridlock as if it's a bad thing. It's the way our founding fathers designed the system. They didn't want it to be easy to pass legislation. It's supposed to be difficult so legislation (government) is minimized. We're in the predicament we're in because of too much compromise, too much legislation, not too little. The country typically does best when Washington does little.

  • Report this Comment On December 29, 2012, at 2:18 PM, WhidbeyIsland wrote:

    A few years back, the United States fought a bloody war, either for states' rights or to end slavery. Since that time, "red" has switched from "communism" to Republicanism and "blue" has switched from depressed (in a catchy musical way) to Democratism. It's time to settle the grid lock by separating the red states from the blue states (much as India split into India, Pakistan, and Bangladesh. That worked out really well, by the way.) Some people will have to move, but once that inconvenience is over, everyone will live happily ever after.

  • Report this Comment On December 29, 2012, at 2:27 PM, shirleysmoot wrote:

    This is one of the best articles I've read concerning this issue. Even before I read it though I had decided that I want to be one of those who actually has some say in who gets elected so, after being a life long Democrat, I'm going to re-register next week as an Independent.

  • Report this Comment On December 29, 2012, at 2:31 PM, burrowsx wrote:

    Morgan, if this were written by a communist in the 1950's, your economic determinism would be considered a fantasy. You are quite right the public's desperation with its econimic stagnation is at the root of its floundering for explanations and quick cheap political solutions. You are wrong, however, that the lack of solution to the "fiscal cliff" crisis is strictly a matter of economic incentives.

    The real question to ask is why so many conservatives and liberals are content with cheap quick political solutions, why our incentives are so complex and contradictory, and what we can do about it.

    For starters, I would like a personal income tax code which can be written in 10,000 words or less, and which treats all income from all sources equally. This will minimize the number of loopholes, leaves plenty of room for graduated marginal rates.

    Next, I would like to divorce small business income from the income of the sole proprietor or partner. Business income should be taxed the same as corporate income, so that the discrimination against small business must end. The proprietor's personal income will be based on salary and dividends extracted from the business for personal use. plus the income the proprietor receives from other sources. This will solve the argument that higher personal income marginal rates will adversely affect small business, while providing incentives against the self-reward which pervades the upper echelons of corporate management by providing marginal rates that discourage boards and management from enriching themselves for short-term accounting tricks at the expense of employees and investors.

    Marginal rates should be based on the federal poverty level on December 31 of the prior tax year. I would start negotiations with a table that taxed income below the poverty level at nil; twice the poverty level at 10%, three times the poverty level at 20%, and so on thru 8 times the poverty level at 80%. Note that this automatically corrects for inflation, and for family size (but only up to a limited number of dependents, where poverty levels are compiled).

  • Report this Comment On December 29, 2012, at 10:26 PM, NOTvuffett wrote:

    way off topic, but there was a thing in the news today about an old and dead indian mathematician who was finally proven correct in his thesis about the periodicity etc. of theta functions.. it was further argued that functions with the same form may not be super-symmetrical. when i look at these functions, i can not help but to reminded of fractals. one represents perfect order, the other, chaos.

  • Report this Comment On December 30, 2012, at 11:46 AM, BMFPitt wrote:

    I think we're more like the 27 year old who is starting to realize they're not 18 anymore, but not ready to do anything differently.

  • Report this Comment On December 30, 2012, at 7:01 PM, damilkman wrote:

    Good article. I am interested in anyone's opinion on federal monetary policy to keep interest rates low. Could the increasing debt be an incentive for policies to prevent the economy from ever booming. Could we be entering a period where muddling along is preferred because the consequence of a boom, would be higher servicing rates on the national debt? If that were to occur, the can could be kicked for a lot longer period.

  • Report this Comment On December 30, 2012, at 10:29 PM, NOTvuffett wrote:

    @damilkman, I think you raise a fair point. Even in Mr. Housel's initial article, he makes note of the fact that the debt service now is low by historical standards. But the debt is huge, and nobody has a plan to pay it off. The interest rates cannot remain this low forever. Would you get a loan on a house and never pay anything toward the principle? When, not if, rates go up, servicing our current debt could be crippling. Our nation's favorite midget Tim Geithner predicted that the nation will be out of cash tomorrow. So what will the govt. do? Borrow more, and make a symbolic act of raising taxes without addressing the underlying systemic problems.

    @BMFPitt, I came to grips with my own mortality many years ago, but just yesterday I came to the horrid realization that I look like the lead singer of 'Jethro Tull', lol.

    'Jethro Tull Locomotive Breath': http://www.youtube.com/watch?v=gWubhw8SoBE

    it is about a minute in before it really rocks...

    In the shuffling madness

    Of the locomotive breath,

    Runs the all-time loser,

    Headlong to his death.

    He feels the piston scraping --

    Steam breaking on his brow --

    Old Charlie stole the handle and

    The train won't stop going --

    No way to slow down.

    He sees his children jumping off

    At the stations -- one by one.

    His woman and his best friend --

    In bed and having fun.

    He's crawling down the corridor

    On his hands and knees --

    Old Charlie stole the handle and

    The train won't stop going --

    No way to slow down.

    He hears the silence howling --

    Catches angels as they fall.

    And the all-time winner

    Has got him by the balls.

    He picks up Gideon's Bible --

    Open at page one --

    God stole the handle and

    The train won't stop going --

    No way to slow down.

  • Report this Comment On December 30, 2012, at 10:41 PM, TomBooker wrote:

    The Big Reset.

    If 4 years ago, we let "the complete collapse of the US Financial System and Economy" occur, where would we be today?

    My best guess is that we wouldn't be here, stuck on stupid.

    Pick your most endearing outcome.

    A mega-Oceanliner of mortgage lenders would be in jail.

    For packing and reselling the fraudulent mortgages, another shipload of ex-Financial professionals would be with them in person or in spirit with electronic ankle bracelets.

    The Dept of Justice would have 326 Oceanfront homes in the Hamptons to sell as partial settlements.

    There wouldn't be any QEing, because it would have been too incredibly bad to waste the ink.

    We would unequivocally know how rich or poor every single one of us really is.

    Most of the self-serving scum would have been ousted from Washington by vote or conspiracy conviction.

    Phil Gramm would be hiding destitute in some backwater dictatorship with no Extradition Laws.

    Jeffery Immelt would be known as the man who destroyed 10s of thousands of jobs and GE. Instead of being in charge of doing nothing to create jobs for the White House.

    Mary Schapiro would be a barista at Starbucks with a new name and dyed hair instead of SEC Chair.

    "Too Big to Fail" wouldn't be the first Fairy Tale of the 21st Century, and Sorkin would be an uber- fringe blogger somewhere, claiming Wall Street was tricked by Mortgagees with 8th Grade educations.

    D'ya see...

    The names could go on forever in seeking some Rube Goldberg attempt to make things as they should be.

    And here we are, saying that Something Wicked must This Way Come.

    It did. And we didn't face up to it.

    This is way more complicated and protracted than would have been necessary.

    One CEO on Wall Street gets indicted.

    One Regulatory derelict gets dragged before Congress for violating their Oath of Office.

    One Rich Old White Guy politician gets hammered out of his political life for years of "free market" crony Capitalism.

    One Media Company grow a pair.

    Things get straightened out real fast.

    Lesson learned yet, that if something is going to fall, you let it fall and clean up afterwards?

    So we're back to.... If 4 years ago, we let "the complete collapse of the US Financial System and Economy" occur, where would we be today?

    The answer is still "I don't know", but at least we would know where we truly stand, and the same Bad Guys wouldn't be in charge.

    Washington is still a big hunk of the cause.

    Worse than that, they are the symptom and logical conclusion to everything which has gone down in the past 5 years.

    We've gone from the Banks needing to collapse to our Government in dire need of collapse.

    What Fire Department members in the entire US would ask "What's in it for me.", before they would even think about putting out the burning building?

    Not even a Fire Dept in Washington DC.

    Yet the Leaders of the US located there would most certainly.

    Budgets, Cliffs, Deficits and Banks Gone Wild are mere twaddle compared to the state of our democratic Republic.

    Either we are going to fix it, or something unthinkable enough to make us fix it is going to force us to do it.

    It is completely clear we have chosen the latter.

    Sometimes I think my tinfoil cap moonbats brothers and I don't really think our monetary and fiscal policies deserve a Big Reset.

    It's worse.

    It might be because deep down, we know we need it. ;)

  • Report this Comment On December 31, 2012, at 3:38 AM, RightD wrote:

    High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/28d1fd14-5295-11e2-aff0-00144feab4...

    Fiscal Cliff Or Not, The Economy Is Recovering:

    The Financials have risen in double digits since the November 14 lows. Bank of America BAC is up 28%, Morgan Stanley MS up 19%, Goldman Sachs GS is up 14%.

    Whether or not we fall from the fiscal cliff, the main effects will be where the government is most invested: the defense (4.9% of GDP), the social services: the welfare (35% of GDP), and the healthcare (15.2% of GDP). The rest of the economy will be only affected “second hand” through higher taxes and health care expenses.

    Good article on the issue published

    by Dr. Lipa Roitman on ** I Know First ** site

    Happy New Year!

  • Report this Comment On December 31, 2012, at 8:58 AM, borneofan wrote:

    Staying with the incentives theme:

    Consider market incentives for voters. Congress-critters gain power over time. Voters must subconsciously weigh the merits of returning a less optimal (but more powerful) congress-critter, vs. a more optimal (but new and comparatively powerless) congress-critter.

    Party ownership and distribution of the spoils of gubmint disproportionately favors mean old dogs to young bucks. This leads to a feast or famine environment for spoils, and a similarly disproportionate power distribution between senior/junior congress-critters.

    Consider Jesse Helms, the meanest of mean old dogs. In a sea of mean dogs, voters preferred to have the meanest, because he was THEIR mean dog, not someone else's.

    Real political change would require complete overhaul of how power and privilege is managed in DC. Ultimately, the gubmint has been hijacked by the political parties, since they own the distribution of power. D/R parties must be wrecked to make reform possible.

    It is not impossible, since roughly 1/3 of the nation is now independent/libertarian/green/(non R/D). But it is not imminent either.

  • Report this Comment On December 31, 2012, at 11:31 AM, foolishlycuriose wrote:

    Your analogy, while true for many Americans, is simply inaccurate in this case. The problem is not that there is no incentive to change because of a high metabolism. Rather our government more closely resembles a middle aged addict hooked on spending to satisfy the insatiable need to stay in power. As to interests rates, well, I have commented previously on the misplaced power of the Federal Reserve Bank. Consider the following quote from Mayer Amschel Bauer Rothschild: "Give me control of a nation's money and I care not who makes it's laws". That pretty much sums up the situation We as a country face today. Take away that power and return it to the Congress, albeit a Congress of American citizens willing to work on behalf of their electorate, and you can solve the fiscal cliff and the larger deficit issues rather quickly. Just an FYI - I am not a conspiracy nut but I do believe that our Constitution should still be the law of the land. This has not been the case for some time.

  • Report this Comment On December 31, 2012, at 12:49 PM, jargonific wrote:

    The "cliff" was a desperate move, or so we are told. But there has been very little said about the real reason for this last ditch effort to have been proposed in the first place:

    Lobbyists and corporate CEOs have way too much influence over Congress AND the WH. All branches are under the thumb of the top 1%.

    When that ends, fair taxation and reasonable market and business regulation can occur. The environment may be protected more, though some say it can't be truly "saved" any longer.

    Remember, we had 7 years to reverse the human impacts of global climate change? Well, that was a decade ago.. now the polar ice caps are virtually gone. We're seeing erosion of the jet stream, and so the entire country went through a giant storm front during Xmas week.

    The only fix is an end to corporatism, which, we know to have been at the heart of fascism.

  • Report this Comment On December 31, 2012, at 1:29 PM, Shark52 wrote:

    I find it interesting that in all the comments and fomenting on both sides, nobody has talked about the actual impact of low interest rates on the middle class - those that are not wealthy but have through disciplined saving habits accumulated $500,000. Not being terribly sophisticated in investing and wanting to be "safe" they put their money in a CD in the local bank. Four years ago this produced $25,000 of interest that they gladly paid taxes on and added it to the CD - they do understand compounding.

    Today that same $500,000 is earning $2,500, if they are lucky. The biggest tax hike in the history of our country in the name of monitary policy and with no politician being blamed. I personally find it disgraceful.

  • Report this Comment On December 31, 2012, at 2:50 PM, patches222 wrote:

    I DO NOT WANTANY"DEAL" ON OUR "TAXES"!!!

    WE HAVE A "VERY CORRUPT PRESIDENT!!!!,THE WORST IN OUR NATIONS HISTORY!!! OBAMA ENJOYS "CHAOS", CHAOS IS OBAMA"S WEAPON!!! HIS WEAPON TO "DESTROY AMERICA", IN HIS "CHAOS", OBAMA WILL SCARE AMERICANS TO "GIVE UP" THEIR CONSTITUTIONAL RIGHTS, SURRENDER TO HIS EVILNESS,AND BY DOING SO "DESTROY OUR BELOVED AMERICA!! OBAMA IS MUCH WORSE THAT THE "NAZI HITLER", HITLER WAS "BRUTAL", OBAMA IS SUCH A "EVIL LIAR", HE WILL CONVINCE HIS WEAKLINGS TO DESTROY AMERICA AS HE SMILES AND "PUTS A TRIGGER TO THEIR HEAD AND TO THE HEAD OF THEIR LOVED ONES!! OBAMA IS AS EVIL AS SATAN, HATES AMEERICA, GOD, AND ALL DECENT PEOPLE!! AMERICA WILL SOON BE UNDER THE COMPLETE CONTROL OF "SATAN"AKA BARACK HUSSEIN OBAMA !!!!

  • Report this Comment On December 31, 2012, at 7:48 PM, buckomarg wrote:

    patches222 Are you serious? Make an appointment with your nearest mental health worker (lucky if he/she make $10 hr.) and work out some of that anger!

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