Much debate is occurring on Capital Hill concerning the so-called “Fiscal Cliff”. The “Fiscal Cliff” per se was a negotiating tool between Democrats and Republicans to once again kick the proverbial debt-ceiling debacle further down the road. The deal with the devil was simple and relatively quick. “Since we can’t decide today on what to compromise on, lets put a scary monster in the basement that will require us to take action when it finally decides to come upstairs.”
The scary monster has come upstairs and the ability of the parties to negotiate it away may be no better than when it was put in the basement. In simple terms, the fiscal cliff does two things that have economists concerned. Cash flow to wage earners would be reduced as tax rates would increase across the board, decreasing take-home pay, and many entitlements would be slashed, thus reducing payments from the government back into the economy. This so-called “cliff” when reduced to paper shows a significant dent being made in the deficit, but at the cost of an overall reduction of funds being circulated through the economy that could hasten another recession.
If monetary policy was a sure thing there would be no recessions, depressions, or runaway inflation. Economic fluctuations over the last 50 years have proven how inexact a science this is. The entry of human emotion and behavior in the equation is always a “wild card”. Although it’s too soon to tell what the result will be on Capital Hill, one thing is certain; healthcare, and the provision thereof will continue to grow, and will consume a growing percentage of GDP. If you’re in that field, you may be safe, even from the scary monster waiting in the basement!
