- Israel poised for a $173M boost from the U.S. for missile defense
- Leon Panetta named as source of ‘Zero Dark Thirty’ scriptwriter’s information
- Mandela service sign language interpreter: ‘He made up his own signs’
- Pope Francis named Time’s ‘Person of the Year’
- Ben Affleck: Fundraising for Democrats started to ‘feel gross’
- Vladimir Putin orders military to boost presence in Arctic
- Brooklyn, N.Y.: ‘Lesbian capital’ of the Northeast
- Elian Gonzalez: It’s America’s fault that my mother died
- India top court rules homosexuality is illegal
- Aaron Hernandez, ex-Patriot, on prison life: ‘I’m way less stressed in jail’
Mortgage Q&A: Painful options on ‘fiscal cliff’
The "Fiscal cliff" is the buzz these days. This is a reference to across-the-board tax cuts due to expire at the end of the year, joined with large government spending cuts set to go into effect at the same time. Economists are predicting that such a convergence will greatly disrupt the economy and throw it into a major recession.
The politicians are posturing while the rest of the country sits back and waits to see if they come up with a compromise. The choices to avoid the fiscal cliff are not attractive. On the one hand, raising the debt ceiling, which I think is a likely scenario, is not a long-term solution, seeing as the U.S. debt now exceeds $16 trillion.
But tax increases, coupled with huge government spending cuts at a time when the U.S. economy is extraordinarily fragile, could not only kill any recovery that may already be under way, but also kill growth and cause unemployment to reach double digits.
The latter scenario isn't pretty. Savers and investors sell their stocks, fearing a recession will result in lower corporate earnings. The sell-off triggers a stock-market crash, so billions of dollars of wealth on paper disappear. This perceived lost wealth, coupled with a higher tax burden, creates a cutback in consumer spending, which creates lower corporate revenue, which helps fulfill the prophecy of lower corporate earnings. Lower corporate earnings result in expense cutting, which leads to layoffs, which lead to higher unemployment.
On the bright side, interest rates are likely to remain low under this scenario because inflation is not likely to ignite.
Raising the debt ceiling has been the Band-Aid to prevent a fiscal cliff in the past. Proponents of more government borrowing to cover the deficit argue that economic growth eventually will generate enough revenue to reduce the national debt.
There's one thing that I think is for sure: Any abrupt and radical change will be painful. You can't take a 5,000-ton freight train moving at 100 miles an hour and expect it to make a hairpin turn without it crashing and burning.
Henry Savage is president of PMC Mortgage in Alexandria. Send email to email@example.com.
By Donald Lambro
Growth spikes are little more than trend-free anomalies
- Teen thugs in DC run wild -- even while wearing GPS ankle bracelets
- New budget accord saves $23 billion -- after $65 billion spending spree
- VEGAS RULES: Harry Reid pushed feds to change ruling for casino's big-money foreigners
- Obama takes 'selfie' at Mandela's funeral service
- CARSON: Why did the founders give us the Second Amendment?
- Obama hits new poll lows for approval 38 percent
- Gov't Motors: Obama fudges math on auto bailout, $10.5 billion loss for taxpayers
- FITTON: A closer look at the Benghazi lie
- LAMBRO: The dark lining to the silver cloud of Obamanomics
- Somber duty: U.S. presidents in hot demand at Mandela's memorial
Independent voices from the The Washington Times Communities
Television commentary, reviews, news and nonstop DVR catch-up by Lisa King Dolloff and friends.
Helping the YOUniverse conspire on your behalf.
A column dedicated to discussing politics, national security, civil liberties, and education.
Criticism may not be agreeable, but it is necessary. It fulfills the same function as pain in the human body. It calls attention to an unhealthy state of things.
White House pets gone wild!
Let it snow