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can someone explain it in simple terms, holding back on the paranoia a little.

what is it?
what is it going to accomplish for the united states?
why?

in the u.s. the economy is running at a 15 trillion dollar pace (gdp 15 trillion a year).  

but the government is borrowing over a trillion dollars a year and spending in the economy.   so take away that spending and the gdp will likely drop.  a dropping gdp is the definition of a recession.

to "keep the party going" congress would need to borrow more, but there is a "debt ceiling" law preventing that from occurring.

so without the power of being able to use fiscal policy (taxing and spending by the government) to avoid recession, the term fiscal cliff describes what awaits.

this started in 2007, 2008.  instead of dealing with the problem then, instead there was tarp, then "stimulus", qe1, qe2, and now qe-eternity and the can got kicked to where it lies today.  simply kicking the can causes a bigger, heavier can and trying to kick the can further now could break your foot.

so tricks and politics have led us here, to the edge of the fiscal cliff.   enjoy the view because it is going to get ugly real soon,

In 2011 the president wanted to raise the 'debt ceiling', the maximum amount of money the federal government can borrow by law.

The Republicans would only approve the deal if there was a provision for massive spending cuts at the end of this year.  This also coincides with Bush-era tax cuts ending.  The intent was to intentionally paint the government into a corner, so that they would have to come up with a plan that Democrats and Republicans could agree on.

I believe the numbers I heard was that the total impact would end up being a 1/2% reduction in the United States GDP, but I don't have a source for that now.  Corrections are welcome.

Some people thing this reduction would hurt the recovering economy, possibly causing recession.

TLDR: Politicians played games so they could increase government debt while saying they were against it, and now they're playing games to show either they're (a) anti-deficit and the other guys want to raise working peoples taxes, or (b) the other guys don't think the rich should pay their fair share, want to raise taxes for everyone, and slash government programs.

is a 1/2 % reduction in GDP really that big of a deal? why is everyone making so much of a fuss about it?

is a "recession" really that bad if that's all that happens, or is the concern that it will lead to some kind of a chain reaction?

Well the important number isn't amount of total GDP, but how it cuts into growth.  Average annual GDP growth is 3%.  If we had 4% GDP growth before, and subtracted a half percent after, we're still above average.  If we're already in recessionary 1.1% GDP, and get knocked down to 0.6% that's basically kicking the economy while it's down.

But I don't think it's as doom-and-gloom as the media tries to make things out, and I think there will be a compromise, although that might be a few weeks into 2013.

The growth that the establishment economists are talking about is phony, the reason it's going to have such a 'catastrophic' effect is because it is forcing companies to stop unproductive businesses that aren't making anything which is what a big percentage of western countries are made up of, they can't tax the private sector any more to get their money because there is barely any private sector left and they can't borrow the money because no one wants to lend any more. For years now we've essentially been leeching off countries like Germany and China that are production based economies whereas the countries that most of us live in don't make anything and don't have anything of value so the whole system is collapsing in on itself.

So really in simple terms, the fiscal cliff is the end of a long running con that many western countries have been perpetrating and many stupid pillocks have been voting for unwittingly because they didn't know any better and they seem to think that the politicians are actually capable of keeping it going judging by the fact they've re-elected Obama for the second fucking time. I think I'm going to avoid using the word fiscal cliff because I think this is actually some made up PR word to make the people think people less of the situation they're in, I actually think what they're talking about is a recession/depression and it's going to come in hard on the U.S

Edit: Here's a little link where Peter Schiff explains pretty well what's going on with the U.S economy: https://www.youtube.com/watch?v=IlWpGm9POwQ

In my opinion Fiscal Cliff = Recession/Depression PR word

The Fed is buying up treasuries... in other words lending money to the Federal Government.  Treasury prices move inversely to interest rates.  The government can't afford for interest rates to rise, without the Fed writing down their debt, which other (foreign) investors might see as a default, and will certainly add inflationary pressure.  In order to keep rates down, they must buy more and more treasuries.  Operation twist has been the Fed buying long term treasuries (to keep the long term interest rate low) using proceeds from selling short term treasuries (on the open market).  This would normally drive the short term rates up, but there is plenty of demand from outside investors who want to exchange their long term US debt for bonds that mature sooner.

Unless the winds change, Operation Twist will come to an end in January 2013.

Now think of the market minus this distortion.

The Fed's buying pressure ceases ending the support of the long term prices (they stop holding long term rates down).  The selling pressure ceases ending the resistance to the short term prices (they stop the upward pressure to short term rates).  Sure, many bond investors will recognize this, but it takes a while to turn a market of that size.  The market (in the short term) will drive down the short term rates, spurring cheap, short-term lending/refinancing (the kind of debt that people pay off), but decreasing investor appetite.  The market will simultaneously drive up the long term rates, increasing investor appetite but at the cost of interest rate increases on mortgages and other long term loans.  However, QE-infinity involves purchasing mortgages, so the hope is that they can at least keep rates low there.

The spiking long term rate will add leverage to force the politicians to fix the cluster-fuck they have created, at the expense of the long term debt markets.  This will hurt corporations who rely on financing for construction projects, but many corporations are flush with cash now.

Cash will be king soon, but its reign won't last.

i thought the united states had a huge manufacturing base, second only to china?

The manufacturing is largely defense related (government expenditure).  China manufactures consumer goods.

HAHAHAHAHAHAHAHAHAHHAHAHAAAA!!!!!

^_^


This guy has it right, a lot of America is made up of military spending, hence why you have people that rant about the military industrial complex which is what that is.

Basically the US economy will cease to exist in 1-2 years.

are you guys sure?

http://en.mercopress.com/2011/03/15/china-became-world-s-top-manufacturing-nation-ending-110-year-us-leadership

http://investing.curiouscatblog.net/2011/12/27/top-10-countries-for-manufacturing-production-in-2010-china-usa-japan-germany/

come on i asked for no super-paranoid stuff. :-)

It's actually a pretty real possibility, obviously the country itself isn't going to cease to exist lol but perhaps something will happen to the current federal government for sure.

Something I put together for a friend recently (paranoia free):

The fiscal cliff is a combination of 2 budget related events that are scheduled to occur at the same time.

Part 1:
In 2001 and 2003, there were legislative efforts to make significant changes in the areas of the U.S. Internal Revenue Code.  These changes would have the effect of significantly reducing revenue for the U.S.  There was already in place a rule in the U.S. Senate that allowed Senators to block any budget changes which would significantly increase the federal deficit beyond ten years.  To get around this rule (and the Senators who would use it to block the legislation), the changes were written to expire on January 1, 2011.  At that time, if no further efforts to extend the law were successful, all the changes to the U.S. Internal Revenue Code would revert back to the way it was (higher taxes, increased revenue).

In 2010, the U.S. was in a period of economic recession.  There was a fear that increasing the tax burden on businesses and individuals at that time would only deepen and increase the duration of the recession.  Those who sided with President Obama on the matter, wanted to create a new law that would maintain the lower tax burden on those earning less than $250,000 while allowing the changes to revert back to pre-2001 for those earning more.  Those who did not side with the President wanted to extend the duration of the lower tax burden for everyone, including those earning more than $250,000.  A compromise was worked out that would maintain the post-2001 changes for everyone until January 1, 2013 and would give President and his supporters some other things they wanted that might otherwise have been difficult to get through Congress.

This means that on January 1, 2013, unless the legislators in Congress can come to an agreement on how to deal with the situation, the tax U.S. Internal Revenue Code changes that were made in 2001 and 2003 will expire and most individuals in the U.S. will see an increase in their tax burden in 2013 as compared to the years since 2001.  This increase in revenue does not automatically trigger any increase in spending and, while it would significantly reduce the federal deficit, many see it as a significant hindrance to U.S. economic activity, possibly enough to push the country back into another economic recession.  President Obama and his supporters are once again asking for an extension of the lower tax burden for those earning less than $250,000 while allowing the tax burden to revert to pre-2001 levels on those earning more than $250,000, suggesting that the increased revenue from those higher earners is necessary to reduce the federal deficit.  Those who do not side with the President want instead to extend the lower the tax burden indefinitely for everyone and deal with deficit reduction through spending cuts.

Part 2:
The United States has this silly law created in 1917 often referred to as the "debt ceiling".  This law does not prevent Congress from creating budgets that increase the national debt, it simply prevents the government from issuing new bonds to cover the costs of that increased spending.  The national budget and the debt ceiling are two completely separate processes that happen at different times.  Congress can at any time they find it necessary vote to increase the debt ceiling in order to continue to issue bonds to cover the budgeted spending. In 2010 (or early 2011, I can't remember), the U.S. Congress passed a budget that would increase the national debt beyond the debt ceiling in the summer of 2011.  The assumption was that the debt ceiling would later be increased as it had been regularly (over 80 times) in the past. At this time there were some members in congress who wanted to significantly reduce spending to reduce the deficit and preferably reduce the debt.  Being a minority of the Congress, they didn't get the spending cuts they wanted. Since the debt ceiling places a limit on the ability of the government to pay obligations it has already incurred, these members of congress decided that they could use the potential damage to the country of being incapable of raising additional funds as leverage to get concessions from the majority that they otherwise might not have been able to get.  Breaking a filibuster in the Senate requires 60% of Senators to agree, meaning that a 40% minority can prevent a new law from being passed.  Essentially a minority of members in Congress held the country's debt ceiling hostage until the majority of members met their demands.

A compromise was eventually reached whereby the debt ceiling would be increased (under the current budget it will need to be increased again in February of 2013) and some spending cuts would be made.  In addition as part of the compromise, a law was passed that required the Congress to find another compromise to cut $1.5 trillion.  A deadline of December 23, 2011 was placed in the law to find this compromise. To give all parties in Congress an incentive to work out a compromise, if they failed to do so by the deadline then there would be an automatic across-the-board cuts of spending split equally between defense and non-defense programs.  These automatic cuts were scheduled to occur on January 1, 2013.  Supposedly the idea was to create a financial situation severe enough that all parties involved would be willing to compromise.  Congress failed to find a compromise they could all agree to.  I suspect that each side thought that they'd fare better after the November 2012 election and figured they'd just wait until December 2012 to use the results of the election as leverage to get what they want.

This means that on January 1, 2013, unless the legislators in Congress can come to an agreement on how to deal with the situation, U.S. government spending will be cut substantially without consideration to the value of the programs receiving the cuts. Many see this decrease in government spending as a significant hindrance to U.S. economic activity, possibly enough to push the country back into another economic recession.

Fiscal Cliff:
Given the explanation above, on January 1, 2013 if no further action is taken, federal income tax rates for most people will increase to what they were prior to 2001 and the government will cut spending by well over $1 trillion.  While this will have the benefit of significantly reducing the deficit, there are many who believe that pulling that much money out of a fragile economy that is still working its way out of a recent recession could bring about an economic depression worse than the country has ever experienced in the past.



TLDR; In 2010 the government extended the "Bush Tax Cuts" to Jan. 1, 2013.  In 2011 the government scheduled over $1 trillion in across-the-board spending cuts to take effect on Jan. 1, 2013.  The "Fiscal Cliff" is the idea that the increased taxes and reduced spending would pull too much money out of an economy that is recovering from a recession and could create a severe economic depression. One of the possible benefits of the "Fiscal Cliff" is that, if the economy doesn't completely collapse, it will result in a substantially smaller deficit.

thanks danny, all clear!

Also on Quora (https://www.quora.com/2013-U-S-Fiscal-Cliff/What-exactly-is-the-fiscal-cliff).

The "Fiscal Cliff" is nothing more than a bunch of fear mongering and propaganda from politicians who don't want
you to complain when you get a tax increase enema. "I'm sure glad I can more taxes so
we could avoid that fiscal cliff".

They need to increase taxes to try and curb the coming increase in inflation to the US Dollar.

Long shot guess is planned economic collapse to usher in the 21/12/12 Mayan Apocalypse/End of Days as a self-fulfilling prophesy method to bring about the second coming of the Messiah and thus a new system of religious control. Or maybe press hyperbole.

It's best explained in pictures,

what happened when USA couldn't pay it's bills last time?

1971 Nixon closed the gold window and the Bretton Woods (gold backed) dollar was dead and replaced with a new fiat debt backed dollar...

http://upload.wikimedia.org/wikipedia/commons/3/31/Federal_Funds_Rate_1954_thru_2009_effective.svg

Now imagine paying your mortgage at 10-19% interest rate in the new $Amero

http://img.truex.org/amero.jpg

Backed with the hard assets of Canada's (lumber/tar oil), Mexico's (silver/gold) and USA's (corn/wheat) ;D

The term "fiscal cliff" is PR for "eventual result of the massive failures that have been fiscal and foreign policy for the past decades".

The hosts are trying very hard to keep the party going, as someone said earlier, it takes a lot stronger of a kick to get that can just a little further each time. We are getting there, the evidence exists clearly. Consider just the past five years and the massive acceleration of cash influx out of thin air, the bailouts, the stimulus, the tarp, . . . .These are indications that "it" is coming. There will be a massive devaluation, a "new dollar", or an "international dollar" would be my speculation. The dollar is spent, it lives as a shadow that lingers on only due to former trust and value.

I remember people talking about the Amero back in '09. All my friends thought I was bonkers.

As to the "Fiscal Cliff", here's the real deal. I picked up this information from some guy in a pub:
The 21-12-12 Mayan apocalypse date signified the start of the Biblical 7 year Tribulation period. The gun control
business and the fiscal cliff are the heralding events. Bitcoins are a nice hedge in this scenario

i.e. "mark of the beast"

It's when the US government sh*ts out a titanium coin they deem is "worth" 1 trillion dollars (https://www.google.com/search?q=government+titanium+coin&oq=government+titanium+coin&aqs=chrome.0.57j0.5637&sugexp=chrome,mod=10&sourceid=chrome&ie=UTF-8#hl=en&safe=off&tbo=d&tbm=nws&sclient=psy-ab&q=trillion+dollar+coin&oq=trillion+dollar+coin&gs_l=serp.3...14791.18175.0.18304.24.20.2.2.2.0.159.1828.14j6.20.0...0.0...1c.1.QcuxahEsbG4&pbx=1&bav=on.2,or.r_gc.r_pw.r_qf.&fp=a2738c249cc74eaa&bpcl=40096503&biw=1476&bih=888) so that we can pay our debts and spend more money...

Nah, that is a proposed reaction to the debt limit crisis.  It has nothing to do with "the Fiscal Cliff".  Two separate political issues.  "The Fiscal Cliff" was a specific name chosen for a specific event.  Trying to apply it as a name to every fiscal event you disagree with doesn't make it so.

The hilarious thing is that for years, tons of blogs and commentators have been using terms very much like "fiscal cliff" to mean the whole stupid debt/entitlement situation that we've gotten ourselves into over the last 20/50/100 years.  I don't feel like digging through archives tonight, but I'd be totally amazed if there weren't thousands of uses of that exact phrase to be found in old posts from the last 5-10 years.

When I started hearing the term from ordinary folks, I nearly cried with joy, thinking that the idea had finally crept into mainstream consciousness.

Nope.  Just like "tea party", the media took a term in common internet usage and made it into something totally different overnight.  Fuck you, media!

Yep.  But that is what we are stuck with now.  If someone is asking about "The Fiscal Cliff", and they don't clarify what they mean, you can either get clarification, or assume that they are talking about the particular fiscal cliff that the media hyped up towards the end of 2012.

Yeah I know but this was the closest related thread I could find without being annoying and starting a new one. I can't give it THAT much importance :-P

So what happened?

The can was kicked down the road. 

For the average person it means an increase in (Social Security) payroll tax of 2%.  It's technically not an increase since all that was done was the temporary decrease was not renewed for another year but either way, workers will be paying more taxes.

Long-term it might mean another downgrade for US debt if congress isn't able to come to a long-term agreement. 

I wish I could see some actual math reasons on why politicians are so damn scared of paying off their debt but to me it seems like the only reasoning they have for not paying off their debts is ideological neo-keynesian bullshit where they want to keep inflation going as much as possible to keep the never ending lending up from what I know anyway.

Well...  If you are interested in a serious understanding of how it works today, google Steve Keen and read a bunch of his blog posts, lectures and papers.  The important words to be looking for are "credit impulse".

Short version:

Investment causes production causes consumption.  It can be no other way, because eating an apple can never happen before the apple tree grows, and the tree can never grow before it is planted.  In the same way, a computer came from a factory, and the factory had to be built.  But, under keynesianism, we've shifted the way we do our accounting so that consumption is primary.  GDP, for example, is a measure of consumption (spending), rather than a measure of production or investment.  So, when spending slows, all of our accounting shows that the end of the world is coming.  When consumer spending slows, the government must step in to prevent the end of the world.  And governments don't have assets, they borrow.

The other way to look at that is that nobody will bother planting an apple tree, and collecting the apples if other people aren't going to eat them.  The profit motive drives the land owner to plant an orchard, and without expected consumption he wouldn't bother.

In the same way, the computer manufacturer builds additional factories only when the rate of consumption exceeds his current factories' rate of production.

So which is the driver, consumption or investment?

If this is the reason behind borrowing, then why would they continue to borrow in times when consumer spending is growing?  Seem like there must be more to it than this.

Great topic, seriously!

But you asked and you have recieved alot of answers and opinions which I think is good because different points of view and the fact are much easier to paint your on picture of whats really going on.

Because spending free money is addictive.  If you could get fame, power and women by spending other people's money, would you stop doing it?

Your referring to those who paid their  absurd salarys with the bailout money right?

How Much U.S. Debt Does China Own?

http://bonds.about.com/od/bondinvestingstrategies/a/Chinadebt.htm

about one and a half Obamacoins.

You've got an odd way of rounding:

If we assume that when you say Obamacoin, you mean $1 trillion, then I could see rounding the value to any of the following:
About one Obamacoin.
About one and a fifth Obamacoins.
About one and a quarter Obamacoins.

But certainly the number is closer to one than one and a half.

According to the article it's about 7% of the U.S. Debt, and most analysts expect Japan to surpass China in 2013.

Sorry you missed the point. If we start printing Obamacoins, what will any of these numbers mean?

Odd that you would call it an Obamacoin since Obama is not the one suggesting it, and has not stated that it is a solution he is going to use.

Regardless, the trillion dollar coin that you refer to as an Obamacoin is a silly solution to a silly problem.  Congress passed a deficit budget.  The executive branch is required by law to follow that budget.  Congress also created a debt ceiling.  The executive branch is required by law to follow that law as well.  Therefore, the executive branch is required by the laws created by Congress to spend more money than it receives in revenue without increasing the debt.  The only way to do this is to print up more money.

Congress can fix this by passing a balanced budget, or they can fix this by removing (or raising) the debt ceiling.  But if they do neither, then what other option does the executive branch have when it runs out of money?

The article IS A GOOD READ!

It helped me understand just why china even bought our debt in the first place.

And that like stated above that japan is next in line behind china and I didnt know that.

However whats this deal about "obamacoin"??

Here is a rather liberal/democratic view of:
Obamacoin (http://maddowblog.msnbc.com/_news/2013/01/04/16350366-time-for-a-1-trillion-platinum-coin)

I'm sure you can find plenty of stories with whatever political view you prefer (conservative, libertarian, statist, etc)

EDIT: Link didn't go where I intended.  Fixed it.

"In case you're not familiar with this idea: In general, the Treasury Department is not allowed to just print money if it feels like it. It must defer to the Federal Reserve's control of the money supply. But there is an exception: Platinum coins may be struck with whatever specifications the Treasury secretary sees fit, including denomination."

so the coin can be worth whatever they say and is backed by what? More debt? gold?

Backed by the fact that the US Treasury denominates it as $1 Trillion, and someone is dumb enough to buy a titanium coin at that price. In this case, that would be the Federal Reserve. The US normally trades US Bonds (debt) for the Fed's cash, but this is a way for the US gov to go around having to pay the Federal Reserve back, while raising money to pay for budget items.

As a side note, the instance that happens (if it were ever to, which is looking unlikely according to gov officials), inflation would skyrocket. Theoretically, they could just mint 17 of these things and pay off all the debt. Consequently, the dollar would be worthless. Even though they most likely won't go ahead with this scheme, the gov will continue to sell bonds to the FED and continue the inflation process as usual, which is still the fastest they've ever increased the money supply in our history. The USD will be worthless in 10-20 years, especially with sound competition from other currencies like Bitcoin and whatever the future brings :)

From a link in the linked article (http://www.washingtonpost.com/blogs/wonkblog/post/can-a-giant-platinum-coin-save-our-credit/2011/07/11/gIQA2VAPjI_blog.html):

Danny I like your economic thinking a lot better than the Austrian posts that have overrun every internet forum.  I was an Austrian for a long time just because the arguments are easy to learn and it's easy to just repeat the same answer and relate everything to household economics and apples and oranges.  What finally threw me off the wagon was when I learned that they do not believe you can use mathematical models in economic theory.  As an engineer, I cannot accept this, and it seems to be a big reason Austrians have been shut out of economic literature lately.  You can't just ignore the language of science and expect people to take you seriously.  It seems kind of sad because they made such HUGE contributions and were way ahead of everyone else for so long, and then they sat on their lead and lost it by contributing nothing for the last 50 years.

So I am smart enough to realize that I should not be an Austrian anymore, but I am not sure what to replace it with yet.  The other schools seem like they will take a lot longer to learn.  Can you give me some advice on what to study?

Yes, you have to aquire god-like capabilities, create a parallell world, turn the knobs one by one and compare the effects on one world, using the other as control.

Me? Nah.  I'm not one to commit firmly to any one opinion on such matters.   Generally I learn what I can about many opinions and accept that the real world tends to be more fluid than most people like to accept. What works to explain one situation won't always work in every situation, and the number of variables that the world gets to play with makes it difficult to say with certainty which model fits best in any large system.

I'm not really in a position to influence any authority regarding the monetary decisions they make, so I don't worry to much about how various situations "should" handled. Instead I tend to focus more on understanding the decisions that others make after they've made them and adapting myself to how situations "have been" handled.

Hahaha sure, and maybe they'll hire Jesus to be their salesman too. So easy to sell off $1 trillion in non-liquid toxic assets, that's why the Fed bought them (and the trillion dollar coin) in the first place...

They obviously make good investments!!!! :-P

I think we're living in that parallel world xxjs was talking about, where we just turn jobs, use our imaginations, and everything just works...

Id like to see what the coin may look like though after reading some of these article it is not going to happen.

But that doesnt mean we dont deserve some eye candy to go along with this joke!

Would obamas head be on one side and eagle whos aged poorly and looks like it has a disease to symbol our economy?

:(

Everyone I talk to seems to have an opinion one way or the other about inflation.

"Inflation is good. Without the ability to pump money into the market and drive consumer spending, nobody would invest."

Me? I think that's obviously false. If inflation pumped money into the market, why hasn't Obama mailed me my "inflation check" yet?

I think it's obvious inflation (in its current form) is bad. Printing new dollars is simply stealing from every dollar that already exists.

If an existing manufacturer cuts spending on maintenance and new build-out, even if she is doing it in a recession, she's only hurting herself. Only a monopoly can affect demand by reducing supply; otherwise, the supply/demand curve will climb until the price is high enough to spur investment.

To me, it's simple: the Federal Reserve's ability to print money directly attacks supply/demand, distorting the economy and forcing a boom/bust cycle.

There can be cycles without a Federal Reserve, but they are feedback on real decisions by manufacturers and other participants in the economy. The force boom/bust does the exact opposite, distorting that vital information and turning decision-making over to the Federal Government. Since I don't think a planned economy will ever work, I oppose it.

I don't agree with everything Adam Smith said. I think he's just the most famous person who picked up on the simple concept of supply and demand.