Simpson Bowles Forever

April 11, 2012

Getting a “grand bargain” is crucial for America. We are lucky to have patriots like Alan Simpson and Chester Bowles. Depressing that they think another financial crisis is necessary to bring the American people, the special interest groups, and the politicians to the point of compromise.

A lethal, poisonous uncertainty hanging over U.S. markets (and world markets for that matter) is the so-called Fiscal Cliff. As of January 1, 2013, the Bush tax cuts, the temporary payroll tax cut, and long-term unemployment benefits will all expire. To make matters worse, on January 15, because of the failure of the Joint Select Committee on Deficit Reduction, other formulaic draconian cuts will go into effect, which in total will abruptly subtract about 350 basis points of real GDP from what will still be a fragile economy expanding at perhaps 2%. This is the Fiscal Cliff the economy faces.

Unfortunately, there’s another precipice looming—a Monetary Cliff that is even steeper and more hazardous. By the fall of this year, it will become very evident that the U.S. is living beyond its means and that there is an entitlements deficit of truly mountainous proportions. By December of this year, we will be bumping up against the national debt ceiling and a possible downgrade of our sovereign debt. The budget and the deficit are out of control. Just as serious is the enormous liability America has created in the last 10 years of unfunded promises to pay to our people ...

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