Written by Bill Fay
The Fiscal Cliff and Debt Ceiling Duo: What Will Happen to U.S. Jobs?
The legislation that kept the United States from going over the fiscal cliff was fool’s gold for the 12 million Americans standing in the unemployment line.
On the one hand, they had reason to rejoice: The bill provides an additional 28 weeks of unemployment compensation from the federal government. Money in the pocket is always a good thing.
On the other hand, the bill has created so many economic uncertainties that they probably aren’t any closer to getting a job. Specifically, the new legislation didn’t solve the problem it originally was presented, namely how to reduce the federal deficit.
The deficit has become a parachute drag on the U.S. economy, allowing it to inch forward – growth was 2 percent in 2012 and is projected to be that again this year – but holding it back from making the substantial gains needed to reduce unemployment from 7.7 percent to an acceptable level of 6.0 percent.
Chart courtesy of Investors.com.
The federal deficit is $16.4 trillion, which coincidentally happens to be the nation’s debt ceiling – the maximum amount of money the United States can borrow to pay its bills.
The U.S. reached the debt ceiling on Dec. 31, but Treasury Secretary Timothy Geithner said his department took some “extraordinary measures” that allowed them to extend that deadline to Feb. 28. Geithner and his accounts found $200 billion somewhere to keep the government paying its bills for two more months.
Businesses Unsure of Future
Businesses get nervous anytime the government takes “extraordinary measures” to not solve a problem, and the finagling by Geithner’s accountants did not solve the problem. They simply moved the deadline back two months, throwing the final solution in the lap of Congress and President Obama; another reason for businesses to be hesitant about making new plans.
Obama and Congress tried to do something about the debt ceiling in the summer of 2011. They agreed that we needed to cut $4 trillion from the deficit over the next 10 years, but that was the only thing they agreed on.
When it became obvious neither side would budge, they came up with a wild scheme of mandatory spending cuts and steep tax hikes to force a solution. They gave themselves 17 months to avoid this undesirable ending, setting a deadline of Dec. 31, 2012.
This self-inflicted crisis become known as the fiscal cliff, and you saw what a circus Congress and the president made out of that.
They couldn’t meet the deadline, and the deal they threw together not only won’t cut the deficit by $4 trillion over the next decade, it actually will add $4 trillion, according to the nonpartisan Congressional Budget Office.
So now what are American businesses supposed to do? They have been hoarding cash for years, waiting for a clear plan from the government on dealing with the debt ceiling and stabilizing the U.S. economy.
Instead, they get a patchwork plan that the most optimistic economists say might cut $1.6 trillion from the deficit over the next decade.
The response from businesses is to sit on the $1.7 trillion they’re hoarding and wait for a clear signal that the government knows what it’s doing.
There are other peripheral factors at work, like companies having to spend money for the Affordable Care Act (ObamaCare); laying off holiday-season workers; Congress making final decisions on sequestration; and no meaningful incentives to hire.
At the moment, it adds up to more time in the unemployment line for 12 million Americans.
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