The mainsteam media talks about the “fiscal cliff” a lot. The fiscal cliff is not a real crisis. It’s a fake crisis created by the State.
In the USA, the fiscal cliff refers to two laws. First, the “Bush tax cuts” are set to expire at the end of the year. Second, during the last “debt ceiling” debate, the law had an unusual compromise. If Congress cannot agree on a budget, automatic budget cuts take effect. (the “sequestration”) That would lead to a tax hike and huge budge cuts, if there is no compromise.
There’s an obvious fallacy. If Congress wanted to, they could change the law. It’s a fake crisis and not a real crisis.
In Europe, there also is a fiscal cliff. There are several insolvent governments, with huge debts. Periodically, they get bailed out. Each bailout gives the governments enough money to pay the creditors/banks for a few more months. However, the budget deficit is not fixed and there’s another crisis every few months.
In the USA, the Federal government’s debt is in dollars and the Federal government is the issuer for dollars. The budget deficit is just a number on a piece of paper. In a paper monetary system, you can have arbitrarily large deficits. The budget deficit isn’t free. The cost isn’t deferred to the future. The cost of the deficit is higher inflation. The only limit to deficits is the risk of hyperinflation.
In the EU, no government controls its own money. Because the EU governments ceded monetary sovereignty, they can’t inflate their way out of debt like the USA. If Greece has a huge deficit, the cost is paid by inflation throughout the EU.
Who benefits from the European government bailout? The main beneficiaries are the banks who own the bonds. Banks borrow cheaply from the central bank (Federal Reserve or ECB), and buy high-yielding government debt. When there is a bailout, those bonds get paid off at face amount, leading to huge profits for the banks. If there were no bailout, those banks would lose a lot of money due to high leverage. The government bailouts are an indirect bailout of the creditors, the big banks.
Once in a while, there is not bailout and there’s a default. In that case, insiders and the big banks know it’s coming, and make a fortune short-selling.
Who benefits from the periodic crisis? The politicians benefit. It seems like an urgent problem that the politicians are fixing. They get to make deals every time there’s a new compromise.
Most people don’t realize that the “fiscal cliff” problem is 100% caused by government. They passed laws that set up a future crisis, if the law is not changed. It’s a fake crisis, because they could always change the law.