Wednesday, November 7, 2012

The looming Fiscal Cliff

What is the Fiscal Cliff? It's a future radical policy change in the U.S. federal  government that will take place automatically, potentially sending the economy back into a recession that will reverberate around the world. 

Chaos may ensue, creating violent upheavals in all major urban centers where the largest federal, state and municipal employees will become unemployed due to the loss of Federal grants and other locally distributed federal discretionary spending.

The beneficiaries of money from the Greek government have already proved the consequences of these types of decisions. The Greeks are raging in Athens over their new austerity. But first, the private sector will feel the damage.

December 31, 2012 will ring in the new year with expiration of the Bush era Tax Cuts for the wealthy. The two percent "Payroll Social Security Tax Holiday" for employees will also expire. This may show up in the first paycheck of the new year. Employers as well as politically appointed upper-level bureaucrats will experience minor grumbling from the workers, however, upper echelon people probably should consider saving their vacation and sick time for shortly thereafter.

Also expiring will be the Research and Experimentation tax credit, also known as the R&D Tax Credit, which according to Wikipedia has already expired as of December 31, 2011, but the Council on  Foreign Relations (CFR) states this will not expire until December 31, 2012. According to Wikipedia, the magnitude of this tax credit in 2005 was $6.6 Billion, claimed by 17,700 corporations.

There may be a massive sell-off of shares in companies supported by the R&D credit in advance of its expiration.

Are you covered by Medicare? If your doctor's medical practice has a high percentage of patients who are on Medicare, your doctor's income from Medicare will be reduced by 30% According to the CFR. Will your doctor be able to maintain his practice without announcing that he can no longer have you as a patient?

Unemployed? Unemployment benefits will expire at years end as well. I think this also means that support systems for unemployed people receiving these benefits will also be affected. The anticipation of this event will have an impact on the Christmas holiday in 2012, if the unemployed haven't forgotten yet. There will be a huge reduction in spending on non-essentials which will also impact sales tax revenues for state and local governments.

The ranks of Anonymous and Occupy movements will swell to numbers unmanageable by the local and state police, but the military and national guard have been exercising in simulated urban environments that coincidentally resemble western architecture. There are many empty state prisons with factory-capable facilities for laborers who will eventually compete and overwhelm the private sector labor force, driving down wages in the United States. The U.S. having the most prisoners of every country in the world has the potential to also have the cheapest workers.

Thanksgiving is on Thursday, November 22, 2012. Black Friday of 2012 may be unlike any we have seen in history. The unemployed will be anticipating loss of benefits, grandparents on Medicare will be anticipating losing their doctors, employees will be anticipating a payroll tax-hike, entrepreneurs will be anticipating a lack of federal grant money and a tax hit that was once shielded by research and development of new products.

The final day of the one thousand three hundred year old ancient Mayan calendar is Friday, December 21, 2012. You would be wise to save up and plan a huge party, hunker in your bunker, or haven on Cayman.