Wednesday, December 26, 2012

Everyone is talking about the fiscal cliff, and that's very important, but there is a much bigger cliff approaching that puts the current debate in the shade.

  "The real cliff is the gap between what has been promised and what can plausibly be collected in tax revenues: $86 trillion but one recent estimate, over $120 trillion by other guestimates. The difference is caused by the relative rosiness of the projections to control Medicare and Medicaid spending. Lower estimates assume we can stop the growth of these programs in the long-term, something that has not yet happened for the reason that the system lacks any controls to do so.
This gap widens by $7 trillion a year. That is, the promises to present and future retirees and beneficiaries goes up if we count the promises made not just for 2013 but for the future.
This $7 trillion is twice the entire Federal budget and roughly 50% of the nation's GDP. 
Understood in this way, we can see that raising taxes by $200 billion or cutting expenditures by $200 billion is not going to keep us from hurtling off the real fiscal cliff in a few years.
The fiscal cliff is only one edge we're racing toward; there are others. One is a Constitutional Crisis cliff that is just beyond the fiscal cliff, because the Constitution has failed to limit the power of concentrated wealth (the financial Aristocracy) and failed to resolve the Tyranny of the Majority: 50+% of the voters are now dependent on Federal transfers, while 25% pay 90% of the Federal income taxes. Those collecting benefits will naturally vote for what they perceive as their immediate self-interest, which is raising taxes on the minority until the minority rebels.
The only other option is to print the needed $100 trillion, which will destroy the nation's currency and economy. Either way, the 50+% will find the promises made are empty. Either the oppressed 25% opt out ("when belief in the system fades") and tax revenues collapse or everyone's $1,500 transfer from the Federal government will buy a single loaf of bread. Either way, we will face a political crisis."

Those preparing for TEOTWAWKI have the right idea, short term, but the real preparation should be aimed at the question of who replaces the current system when it all falls down.

Trading scrap silver for food from your bug out retreat will only last a short time, as the vast majority of people will demand that someone come along and fix things.  That will be the critical point, as who that person or group of people is will determine what kind of country we live in from that point forward.

Will we have a return to constitutional small government, with power placed with the people, or will the country divide into regional powers governed by de facto warlords?  

That is in fact the question, and the one we should be organizing to control now.

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