It's Austerity, not a Cliff

America cannot avoid the so-called Fiscal Cliff.

There is no cliff. It’s austerity. It’s the same austerity that is causing the Greek people to riot on the streets and set themselves on fire in defiance of the government’s policy of cutbacks in order to pay bondholders.

The Federal Reserve has one more quiver in its arsenal than Greece. It’s the dollar. Greece is unable on its own to cheapen the euro to help bail itself out of the debt spiral it and other southern European countries, ie: Spain, Italy and Portugal are presently going through. The fact that the euro is trading near $1.30 to the dollar is the proof that the fed’s unannounced policy is a cheap dollar. No one will say it but the market’s actions speak volumes.

While US price inflation is rising much more than any core CPI report states, wages, however,  are stagnant as 25 percent of the workforce struggles to find meaningful employment. So as prices climb and wages remain flat as they have for three years you have an increase of deflation, which the Federal Reserve is battling to combat. The central bank has few tools to fight deflation except creating another bubble to inflate the economy.

Meaningful employment equates to a full-time job with decent salary with health benefits.

I have requested from the Bureau of Labor Statistics numerous times what percentage of the US labor force falls into the category of having a meaningful job regardless of salary. They cannot provide that breakdown.

My hunch is that number may be astonishing low for new hires since 2007. Look how the hours worked for the week number has moved into the mid-30s since 2008 and has barely moved.

More workers are taking part-time positions without benefits in a struggle to make ends meet.

Back to the deflation aspect of the economy. The Fed’s one tool to combat deflation is asset bubbles. You can see that in their bond market manipulation otherwise known as Quantative Easing. Ben Bernanke is punishing savers with his ultra-low bond yields. Retirees and soon-to-be retirees are getting near zero interest on bond returns and saving accounts. The Fed wants to chase them into riskier investments such as stocks. This is the bubble aspects, equities.

As equities tick up on seemingly no news or better yet bad economic news, the bubble gets larger and thinner.

So while Congress and the Obama administration debate the tax rate on the upper 2 percent aas being the be all and end all of our economic problems, be aware the cliff for the middle class is coming.

There is no way taxes, social security contributions are not going to rise and rise significantly. We have a $16 trillion hole with more being requested by Washington as the debt ceiling will rise in the first quarter of next year.

There is little that can be done if we continue on the path of enriching entitlements.

More to come on this as I will be far more active on this blog in the near future.


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