This is simply nuts, when you get down to it.
The so-called “Fiscal cliff” is a combination of expiration of the Bush tax cuts, the payroll tax cut enacted by Obama and the sequester.
The amusing part of the so-called “fiscal cliff” is that it is the first time, albeit obliquely, that commentators have spoken of the arithmetic that underlies GDP.
Remember folks that GDP = C + I + G + (x – i)
That is, private Consumption + private Investment + Government (spending) + (net exports)
If taxes go up then either “C” or “I” must go down, since only people pay taxes. That is, you must either consume less to pay the tax or invest less (it’s a balance sheet; it must balance.)
Government spending decreases of course make “G” go down.
Now remember that during this entire debate nobody has talked about what deficit spending really does and why it’s impossible to maintain it forever.
Government deficit spending simply increases GDP by fraudulently inflating credit money. That is, it makes “GDP” go up (mathematically) but does so by increasing the denominator of all monetary units in the system, and therefore causes prices to rise since again, for each unit of GDP produced one unit of money (or credit) must exist to purchase it.
That is, GDP = (m + c) (money plus credit) by definition.
Or, if you prefer:
GDP / (m + c) = 1
This means that for each unit of GDP if you emit more credit money into the system then each unit becomes worth less and buys less.
But that’s never discussed in the mainstream media. Now, however, the converse is being discussed. The common claim is that about 3% of GDP will “disappear”, or $450 billion a year. That’s the sum of the expiring tax cuts + the sequester.
Heh wait a second! If that’s what happens to GDP when that goes away then you’ve just admitted that arithmetic is still truth and that GDP has been fraudulently inflated by these very same deficit-spending games and since the means of doing so was to emit more credit money into the system (the selling of bonds by the government) the average person in the nation has had their purchasing power debased by the exact same amount.
I love it when the punditry accidentally tells the truth and gets caught in their own trap, validating the very points I’ve been pounding the table on for years.