What is The Fiscal Cliff? Is it The End of The American Economy?

Without meaning to sound like an economics or political science professor, we first need to discuss what the Fiscal Cliff is. Many people think that the fiscal cliff is an approaching economic disaster of some sort that has to do with America’s debt and economic policy. That statement isn’t exactly false but the fact still remains the Fiscal Cliff is something entirely different.

fiscal cliff

Is This The End of The American Economy?

This fiscal cliff is actually a colloquial term used to describe the Budget Control Act of 2011, and it is set to go into effect December 30th 2012. The reason why this act is being described as a cliff is because no one really knows how the market and economy is going to react to its implementation at midnight on December 30th.

Among the many laws and regulations set to change are, the end of 2011’s payroll tax cuts, which will result in a 2% increase in taxes on blue-collar and middle class workers, the end of specific tax breaks for businesses, a shift in the different types of alternative minimum taxes, the end of the Bush tax cuts, and the first of many tax increases for Obamacare. While all of that is happening, the cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect as well, this includes, over 1,000 government programs such as the defense budget and Medicare which speculators have said is going to get the worst of the cuts to cover the budget. So like I said the actual definition of “fiscal cliff” isn’t exactly what people think, but certainly the results can be catastrophic.

The fiscal cliff is going to happen. There is no stopping it, the only thing that can be done is the country and the markets need to prepare for it. The question is what can they do? First they can try letting the current policies go into effect for the beginning of 2013, which features a number of tax increases and spending cuts that I spoke of, which are expected to quickly stifle growth and possibly drive the economy back into a recession. There is a plus side to this; a silver lining if you will, the deficit as it applies to the GDP would be cut in half.

The second thing we could try is to cancel some of the scheduled tax increases and spending cuts, this would undoubtedly add to the deficit which would increase the odds that the United States will create a crisis similar to the one that is occurring within the European Union. Not only that but the United States’ debt will continue to grow to astronomical levels leaving us to face the same problems again next year which can and will be exponentially worse.

There really isn’t much that can be done anymore we have spent ourselves onto a very high cliff, to which if we were to fall, there would be almost no recovery. The point is this. We are headed towards another financial crisis, the likes of which this country has never seen. I don’t want to sound overly dramatic because a statement like that borders on being an alarmist. The truth is I am very late to the party when it comes to writing about this. Take a look throughout the internet and news, the top economists in the world and high-ranking government officials have been screaming about this for a while hoping that someone would listen before it was too late.

Now unfortunately it is too late. If the current laws slated for 2013 go into effect, the impact on the economy could be devastating. While the combination of higher taxes and spending cuts would reduce the deficit by a mere $560 billion, the CBO estimates that the policies will cut the GDP by four percentage points in 2013, sending the economy into a recession worse than the recession of 2008, a recession that we still haven’t fully recovered from. At the same time, the CBO predicts that unemployment will rise by almost a full percentage because nearly two million jobs will be lost in the cuts and then another potential three million could be lost from the recession itself sending the unemployment rate over ten percent.

All of this is speculation, most of the time the estimates fall short to what actually happens, and we end up with something that is bad but certainly something we can survive. The truth is we brought this upon ourselves. I am not saying we the American people, (the people who are going to pay and have to live with the mess) I mean the country, and the money hungry big business that sent this country down the drain with their greed.

I am scared for the future; I have absolutely no idea what is going to really happen. I just know the numbers, and looking at them I can’t help but think no matter what happens, it’s not going to be good. The true silver lining of this whole thing is, maybe, just maybe, the people who caused this will finally get what they deserve. Letting the whole thing fail and fall apart will just create an uprising of people demanding reform, people demanding that someone take responsibility for the downfall of our economy and country. If we let it all fail, let the whole unholy system fall down around them, then something better can be built, hopefully something more sustainable. The unnatural and artificial perception of our economy created in 2008 might begin to change, maybe we can move towards actually creating things again or move back to what made this county so great.

I don’t know, this is all so idealistic, it’s not going to happen but hey a guy can dream can’t he? The bottom line is this, we are in for a very long road ahead, and there is certainly no way anyone can know what is going to really happen. We need to just keep moving forward and see what the future holds.


About SalPezzino
Along with writing for, I also have my own personal blog called It Doesn't Take Common Sense to Know.... Check it out @

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