OverLeveraged — A Blog About Debt

"You will only be successful if you truly try to satisfy that burning desire inside you. And for you, that burning desire is to tell that story." – James McBride

The Fiscal Cliff Hysteria Is A Hoax

The United States will not tumble back into a recession whether the spending cuts and tax breaks do not get addressed prior to the Congress taking Christmas vacation — for the simple reason that “the economy” (not to be diffused with the stock market) does not fluctuate like the mood of a 15-year old girl.

fall-off-cliff

Remember how in the months leading up to December 31, 1999 we were bombarded with news about how entire computer systems would crash as the clocks struck midnight and launched us into a new millennium?

It was a textbook example of mass-hysteria and based on something as simple as an outdated programming structure. In the early decades of computers they had only a fraction of the power they have today, and computer systems were designed accordingly with seemingly smart solutions to save memory space. One clear-cut example was the frequent labeling of years using only two digits, such that “1988” was stored as ’88, which saved up space but also disabled the system from being able to handle 1888 or 2088, which became an issue as the new millennium drew closer, the years inevitably bound to start over.

Entities relying on accurately dated information stored in large databases, such as insurance companies, federal and local agencies, and hospitals faced the risk of seeing their systems crash, and scrambled to correct the presumptive programming “errors,” and a vast majority managed to do so successfully.

But to little surprise, the issue, given the name “The Millennium Bug” gathered massive publicity – for the most part taken entirely out of context. Occurring in the wake of the IT-bubble the event spurred the creation of an array of software that ordinary computer users could buy online and install on their computers to prevent the widespread digital disaster that supposedly would take place. By blowing the issue completely out of proportions, this newly created market gained large traction, resulting in handsome profits for its creators.

Needless to say, very little happened when New Year’s Eve turned into January 1, 2000. Medias later talked labeled it an “anticlimax.”

Now, just shy of 13 years later, the hysteria has returned in a different shape. The world is subject to hourly updates on the negotiations between the blues and the reds on Capitol Hill on how to address the tax code changes and federal spending reductions scheduled to take place when 2012 morphs into 2013.

It has ingeniously been labeled the “so-called fiscal cliff.” A perfect concept – “fiscal” being a semi-difficult and business-y word, and “cliff,” rounding out the expression to an understandable level. Together they form an ominous combination promising little but continued economic turmoil, political incongruity, and less money in the wallets of main-street Americans.

People all over the United States, and the world, has raised their voices and urged Washington to deal with the issue immediately. The most recent high-profile name was Lloyd Blankfein of Goldman Sachs who in an interview with Steve Pelley stated that: “If we go over the fiscal cliff it’ll be very bad, hugely negative for the stock market which is, you know, a source of people’s wealth. People will feel poorer.”

Let’s linger a while longer at that last sentence. “People will feel poorer.”

Feel. Poorer.

Feel.

Everyone has that one friend who is always sick, injured, or suffer symptom from some hardly known disease so far only observed in rural Mongolia back in 1947 – the unmistakable hypochondriac. We nod and smile politely while he or she goes on one of those endless rambles about his or her current medical state while envisioning stabbing him or her to death with a spoon, thinking “you are only sick because you believe you are sick.”

The same principle applies to the so-called fisc… (no, I’m not going to say it.) While the media, politicians, and economists across the globe paint a picture of a world falling off a cli… shelf on January 1, most of them neglect to include the simple fact that the effects of the tax hikes and spending cuts will not be tangibly felt until a couple of quarters into the new year. There is therefore no imminent danger with Washington taking its time to engage in a full-on discussion to reach a sustainable compromise.

The United States will still be standing on January 2. The country is not inevitably bound for a recession. There will still be gas at the pumps, bread on the store shelves, and the wheels on the bus will continue to go round and round.

Rather, what we should be worried about is a rapidly decided-on ad hoc-solution that fails to create a sustainable model and will have to be re-addressed. We should be concerned about the force of the media and its ability to induce a somewhat unfounded sense of concern among the American public by repeatedly stating that the nation is drawing nearer the… yeah.

If there is any sort of cliff looming ahead that could tremble the United States, it would be the day this man draws his last breath.

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One comment on “The Fiscal Cliff Hysteria Is A Hoax

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This entry was posted on December 3, 2012 by .
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