A new monster is stalking Wall Street: The “Fiscal Cliff”! Run!!
I’ve heard it said that the boom-bust nature of financial markets and economies is a symptom of the human condition: people get greedy and then they get scared. Well it seems that politicians have their own cycle, not boom-bust but crisis-solution.
The latest incarnation of this is the Fiscal Cliff, an entirely man-made crisis in which US politicians created a economic poison pill to persuade themselves to reduce the national debt through increases in taxes and/or reduction in government spending. Did I mention that they did this to themselves?
After Barack Obama won the US presidential election on 4th November the markets fell on “Fiscal Cliff fears”. Today, Obama met with senior Republican John Boehner and, because the meeting seemed to be cordial, markets are up. It’s crazy, and it feels manufactured.
Running an economy is pretty simple: don’t spend more than you earn. And never forget that borrowing creates more costs.