Has the US already gone off the fiscal cliff?

A most interesting and clearly worded article by Chris Berg in the SMH. It is of course of interest to us down here as the US is such a key player in the world economy.

It's easy for us lefties to point at the Republicans from afar and blame them for all the congressional woes the US is currently experiencing in trying to get legislation through, when nobody wants to compromise. However Berg has a different take on it. Are the Democrats just as stubborn as the Republicans?

The deal struck between Republicans and Democrats on New Year's Day merely postponed what has been termed ''sequestration'': a provision in a 2011 bill that automatically cuts government spending across the board if Congress won't reduce spending itself. But this is all more a political crisis than an economic one. The US budget drove off the fiscal cliff a long time ago. This is the fifth year in a row the budget deficit will be above $US1 trillion - that is, there is a trillion dollar difference between what the government spends and what it taxes. Out of a $3.6 trillion budget, this is an enormous shortfall. A trillion dollars is nearly the size of the entire Australian economy.

The responses are predictable. Democrats think taxes are too low, and want to raise them. Republicans think spending is too high. Yet for some reason it's fashionable in Australia to chalk the madness of the US budget crisis solely up to nut jobs in the Republican Party. Wayne Swan called them ''cranks and crazies''.

According to received wisdom, Barack Obama and his fellow Democrats are pragmatic and reasonable while trying to negotiate with gun-wielding Tea Party fanatics across the aisle. This is nonsense. The Democrats are being just as stubborn as the Republicans, just as political, and, if anything, are more delusional about what has to be done to keep the country solvent.

In the middle of the negotiations, Obama reportedly told the Republican Speaker of the House, John Boehner, that ''we don't have a spending problem''. Really? Spending in the US budget has doubled since Bill Clinton left office. It's grown far quicker than inflation or population growth. What on earth would a spending problem look like? Read more

I mean it didn't seem that hard after WW2 for the US to pay off all it's debts incurred during it. So what's the problem now?

Millionaires and billionaires earned $840 billion in 2010. That money wouldn't cover the trillion dollar budget shortfall. And even if the government confiscated everything they owned it wouldn't pay off accumulated US debt. There's too much. 

So it has to be spending. And the only way spending is going to be reduced is if Congress insists. Thank god for multiparty democracy. But we can't exonerate the Republicans. The Iraq war and the bank bailouts happened under George W. Bush. And the reason Republicans are desperate to avoid the automatic spending cuts is because those cuts disproportionately target the military. 

As they should. A massive 48 per cent of all military spending on the planet is spent by the US. The defence budget has nearly doubled since the Cold War. There are still 75,000 US troops in Europe defending against a non-existent Soviet threat. But sophisticated Republican thinking on foreign policy has disappeared to such a degree that military spending is sacred. They won't touch it. Read more

I knew a lot was spent on the military over there, but 48% of all military spending on earth? WTF? When you're a trillion dollars in debt? That's absolutely crazy.

Perhaps the buffoons in Washington could sit down with some kindergarten kids and learn a little bit about addition and subtraction. What bloody delusional world are these people living in? 

Or maybe they could at least realise that the US is no longer the power it once was. World domination was never going to work anyway.