by paulcraigroberts.org
Is the “fiscal cliff” real or just another hoax? The answer is that
the fiscal cliff is real, but it is a result, not a cause. The hoax is
the way the fiscal cliff is being used.
The fiscal cliff is the result of the inability to close the federal
budget deficit. The budget deficit cannot be closed because large
numbers of US middle class jobs and the GDP and tax base associated with
them have been moved offshore, thus reducing federal revenues. The
fiscal cliff cannot be closed because of the unfunded liabilities of
eleven years of US-initiated wars against a half dozen Muslim
countries–wars that have benefitted only the profits of the
military/security complex and the territorial ambitions of Israel. The
budget deficit cannot be closed, because economic policy is focused only
on saving banks that wrongful financial deregulation allowed to
speculate, to merge, and to become too big to fail, thus requiring
public subsidies that vastly dwarf the totality of US welfare spending.
We face one of the deepest crises in history. A prognosis for the economic future requires a deepening of the concepts of inflation and deflation. Without understanding their dynamic relationship and their implications is difficult to predict how things might unfold. The economic future depends on the interplay of both these forces. From the point of view of their final effects, inflation and deflation are, respectively, the devaluation and revaluation of the currency unit. The quantity theory of money developed in 1912 by the American economist Irving Fisher asserts that an increase in the money supply, all other things been equal, results in a proportional increase in the price level [1]. If the circulation of money signifies the aggregate amount of its transfers against goods, its increase must result in a price increase of all the goods. The theory must be viewed through the lens of the law of supply and demand: if money is abundant and goods are scarce, their prices increase and currency depreciates. Inflation rises when the monetary aggregate expands faster than goods. Conversely, if money is scarce, prices fall and the opposite, deflation, occurs. In this case the monetary aggregate shrinks faster than goods and as prices decrease money appreciates.