The Fiscal Cliff: Yes Please

Here at Spend Matters – and probably more broadly in the US – we're in the small minority of those who are excited about the prospects of the impending Fiscal Cliff. As two business owners and parents who are concerned that our children will certainly have a much harder time in this world than our generation because of the unnecessary general spending and entitlement debt they stand to inherit, we're believers in shorter-term austerity to ward off longer-term depression. Our mantra of late has been "4 to 1." We would happily trade $6 trillion in cuts for $1.5 trillion in new revenue. It would, at least, be a start.

The more we explore the debt situation, the more we're afraid of not jumping off the cliff, which we think is secretly what a lot of CEOs and CFOs want but are afraid for their short term bonuses and killing artificially stimulated demand (hence going out on a limb for an extension of close to the status quo). If you start running the numbers on the declining monetary policy and fiscal policy options, credit ratings, debt and deficit by 2020, we're out of money as a country. It's so scary.

We'd sooner sacrifice our own growth as a business and face a downturn next year and in 2014 than wait for what's coming if our gut forecast is correct. Japan has stopped buying our debt, and China is slowing. Who else will want it? Burma? At a certain point, especially once Europe and Asia rebound, we can chase sources of low-cost production, but we can no longer chase buyers of our debt. For this reason, we should welcome a near-term Cliff-inducing recession, given the dangers – even to those impacted by the type of immediate spending cuts that Fiscal Cliff will bring in January – of doing nothing over a decade's time.

As we recently wrote in the forthcoming January edition of Surplus Record, those who don't want to go over the Cliff – or at least make some type of severe spending reductions and while supporting tax increases – should ask themselves the following questions:

  • Are we prepared for 20% inflation and the impact it will have on borrowing, inventories, etc.?
  • Can we afford continued upward commodity price pressure (e.g., metals) in a period of slacking global demand?
  • What would 25% general unemployment look like and 50% youth unemployment in the US (these are the precise figures facing Spain as of December 2012)?
  • Are we prepared to accept a period of sustained civil unrest (e.g., rising crime levels, mob violence, etc.)?

If we want to stave off these scenarios by 2020, we should welcome the reduced spending and increase revenue Fiscal Cliff brings – despite the near-term pain. Perhaps, as Benjamin Franklin once proffered, we would do well to remember that "when you run in debt; you give to another power over your liberty." Or perhaps we've forgotten the value of liberty entirely.

Regardless, if you're in procurement, there are things you can do to prepare, even if our elected officials in Washington, wed to their salaries and pensions, opt to continue to push for the status debtor nation quo.

- Jason Busch and Lisa Reisman

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  1. Thomas Kase:

    Interesting reference to Burma as a debt buyer – at least they can relate to our measurements. Along with Liberia and the US, Burma is the only other country still clinging to an obsolete measurement system.
    Burma also has an obsolete government form (military rule) but that’s a different story.

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