In August 2011, the House, the Senate, and the President all agreed: taxes on all Americans would rise, and government spending would slow on January 1, 2013.
They signed that law in order to get Republicans to agree to an increase in the government’s debt ceiling.
They lied. They had no intention of raising taxes, reducing spending, and getting closer — marginally — to a balanced on-budget budget. It was all a charade. It was another example of kick the can.
They did not take the law seriously. They thought there would be some last-minute deal to keep taxes lower, keep spending higher, and run another trillion-dollar deficit — maybe even more.
Now they are trapped by their own lie. They cannot get a deal. The scheduled tax hikes and spending slowdown will hit the economy in a few days.
“Oh, woe!” The government is now trapped by its own public relations deception. The promised return to at least the fringes of fiscal sanity threatens to create a recession.
Both sides blame the other for not finding a way to kick the can again. Neither side really expected to go through with this reform. It was all for political show. It was political theater. It was all a charade to fool the rubes back home. “We have a solution to the deficit. We’ll begin to implement it on January 1, 2013. Trust us.”
Trust Congress? To quote Nancy Pelosi: “Are you serious?”
Now they are hoisted by their own gaseous petard. They cannot come to an agreement on kicking the can. They now face the grim reality of their own charade.
Frantically, they take the fall-back position of politics. They point the finger. They blame the other political party. “It’s all their fault!”
The bipartisan agreement of 2011 is now about to go into effect. “Oh, woe!”
Obama wants a fig leaf for abandoning the agreement: taxes on anyone making above $400,000 a year. Boehner wants a fig leaf: taxes on anyone making over $1,000,000 a year. Each of them has snatched away the other’s fig leaf.
They are all naked. “We really didn’t mean it in 2011. We really had no solution to the deficit. We were just kicking the can.”
Now their feet are tied. Neither side can get the other to kick the can one more time.
But give Congress credit. They showed perfect timing. On December 31, the federal government will hit the debt ceiling again.
If they come to an agreement in January, it will be on this basis: “We have agreed to kick the deficit can again. We have no solution.”
If they do this, the stock market will rise. Investors much prefer fantasy to solutions. They prefer kicking the can to balancing the budget.
There is no politically acceptable solution. When the slight signs of a solution are called a fiscal cliff, then a postponement will enable us to climb higher up the mountain of federal debt. Then we will be pushed over the edge by rising interest rates, followed by hyperinflation, or federal default, or both: first hyperinflation, then default.