America Not Yet at the Fiscal Cliff – But Wait, Just Wait

Although the U.S. Congress has formally approved the “fiscal cliff” solution, keeping the American economy from sliding off the cliff for the time being, two big problems have yet to be solved, and America’s financial health remains uncertain.

For quite awhile now, America has had some pretty unhealthy financial policies, including overspending, undertaxation, excessive overdrafting, writing IOUs, overprinting paper notes and relying too much on credit. The reason for this is that the U.S. has propped itself up with an inflated worldwide mission and assumed too great a financial burden, which is beyond its ability to take on.

Due to the international currency reserves of the U.S. dollar — and its singular privilege, that of printing U.S. dollars to finance its aims — America has a unique set of financial tactics at its disposal. This enables it to shift its own financial burden throughout the world, despite the fact that it is simultaneously eroding the financial supremacy of the country. The so-called “fiscal cliff” is the result of a long-term financial imbalance. America is now facing quite a predicament that will be a knotty task to rectify.

For a number of years, America might not have been able to make ends meet financially but was not insolvent by any stretch of the imagination. The American government is in control of massive public assets and is a long way from selling off those assets to repay the debts. The American federal government expenditures are enormous, having reached 24 percent of the total GDP. The American GDP is first in the world. The average American’s GDP is also sitting among the top-tier of the world, and the American government’s revenue is only 15 percent of the total GDP. Obviously, the wealth of the American government lies in the hands of the people. So the fiscal disparity is a false dichotomy. America is flush with cash; it’s just that its quest to be in charge of global affairs has led to the federal government’s cash crunch.

Being that the U.S. has long refused to implement a universal health care system like those already in place in Japan, Australia and Europe, then why the fiscal imbalance? The answer is as plain as day — it’s the result of America’s half-man/half-God national philosophy. America is a secular nation, while 80 percent of the nation is religious, and what’s more, most believe in the one God of the Bible. From the time of its founding, Christians have been in control of the White House. Because it believes in divine right, the quest to be the boss has become standard operating procedure in its dealing with foreign countries, especially in the past couple of centuries, and the 2003 Iraq War is just America at the top of its game.

Raising taxes and cutting expenditures are the two great monoliths staring the American government in the face. Even if it were to raise taxes next year, the federal government’s overall spending would still be reduced, and military spending would bear the brunt of budget cuts. Circa Y2K, the American GDP stood at approximately US$10 trillion, and military spending was approximately $2.8 trillion. Flash forward to 2011: America’s GDP had improved to approximately $15 trillion, while military spending increased to $5.6 trillion. In order to finance military operations like the Iraq War, the country has no qualms about incurring massive debts. America’s simultaneous expansion of influence and responsibilities has set the stage for today’s “fiscal cliff.”

In 2011, America introduced deep cuts in military spending, and this is something that the country is afraid to maintain for long. Yet, military-spending cuts notwithstanding, America’s military budget is still more than five times that of China, and American assertions will constitute quite a challenge.

Even if the American government takes measures to increase revenue and cut expenditures, federal spending will be cut somewhat, and this is not completely negative by any means. The American government will definitely have to whittle down military spending and as a consequence lose some of its ability to assert its influence worldwide; and this would represent something of an upbeat note in an otherwise somber tune.

America is facing new thresholds in its national debt and will not be able to loan money to whomever it wants. Although some opportunities to create domestic lending policies and investments might slip through its fingers, at least it will bring some peace of mind to a country fearing an inability to repay the debts. By raising taxes, America will acquire more financial resources, and it will reduce the need for further rounds of “quantitative easing.”

Even if for now there is no fiscal landslide, no matter how much the U.S. decides to raise taxes, there will be some spending cuts, of that we can be sure. America has been running in the red for quite a number of years now, and bringing about a financial balance depends on a shot in the arm to the national debt. Yet, pulling its national economy out of the doldrums has to originate from its real economy.

The American federal spending cuts and economic stimulus reductions that shattered the nation’s collective confidence, at least in the short term, will affect China’s national economy in the long run. The interaction between the American and Chinese economies will occur in America’s private sector. In fact, the constraints that will be placed on the U.S. economy resulting from the “fiscal cliff” will actually be short-term. Just suppose the country slides off the “fiscal cliff,” and it is forced to balance the budget — the development of a fiscally responsible America would still be a quite a welcome sight. And the long-term benefits it would bring would be more than a sight for sore eyes.