The US Fiscal Cliff: Mystery of the Man-Made Crisis

The United States Congress has finally reached a consensus on the fiscal cliff and the public has reacted very positively to this news. But core issues are not yet solved, such as which specific budget cuts must be made in government spending and how to fix the debt ceiling crisis, so a vote will be taken later this month. Xinhua News has published a commentary on this issue, warning that if the United States does not resolve its seemingly endless fiscal cliff crisis, it will not only affect the domestic economy, but will also cause great instability in the international economy. Xinhua is suggesting that the institutional issues within the United States, like the tensions and fights between political parties, will lead to disaster for the people.

From a Chinese standpoint, the way the United States is dealing with this issue is very irresponsible. But for U.S. national interests, this nevertheless reduces the greatest financial risk for the country. To truly understand the fiscal cliff, we must first ask the question: Why would Congress knowingly allow the Bush tax cuts to expire in 2013 and yet in 2011 cut $1.2 trillion in spending under the Budget Control Act, which would be mandatory for a decade starting in 2013? The answer is simple: American politicians are well aware that the country is facing three major paradoxes that stand in the way of resolving this issue.

The first paradox is that the United States cannot continue to go further into debt. Besides leading to economic problems, it will also affect power relations between the United States and other countries. On the other hand, there is no way that the United States can slash short-term spending without borrowing money, making the country even more powerless.

About half of the United States leans toward the Democratic Party and their ideals; they believe that the wealthy should cope with greater responsibilities (such as a tax increase). The other half of the country, which leans toward the Republican Party, believes that government policies should not interfere with the American dream of working hard to become successful. This conflict of values, impossible to reconcile, is the second paradox.

The third is that half of Americans believe that the government should put the most money toward defense and military spending. This is to ensure the country’s power and influence worldwide and to keep its position as a leader internationally. The other half of the country believes that the government should cut this spending to make way for more welfare and security policies to help American citizens solve livelihood problems. This issue is also nearly impossible to reconcile.

Thus, American politicians are not only using the fiscal cliff crisis to solve economic issues, but also to engineer a consensus among Americans on these three aforementioned issues. Through a series of bargaining, there will be attempts to balance the increase of taxes on the wealthy with the preservation of the American dream, and strengthened military spending with the implementation of welfare policies. Some of these demands will be met, while others will not be — all of this is to ensure that there is a balance between the two political parties and to make sure that neither party has more influence over the citizens of the United States, which would cause great social unrest.

The United States can use this to show the international community how hard it is trying to reduce its deficit. At the same time, it seems to be impossible for the United States to actually do so, so we should continue to expect difficulties with U.S. Treasury bonds. The fiscal cliff and the market fluctuations to follow in the next few months are like a smokescreen. While many worry about this man-made fiscal cliff, if they continue to just echo what other people are saying, they will miss the entire story behind it.