Fiscal Cliff Explained.

"Democracy cannot long exist without enlightenment."
Thomas Jefferson

If you are any kind of sentient being, and unless you have been living in some disillusion left wing, progressive land of make believe, you have no doubt heard about the so called "Fiscal Cliff"

As we wind down the hours and minutes of 2012 I think it is both prudent and expedient to talk about the fiscal cliff. Now I assume most of my readership has at the very minimum, a rudimentary understanding of the fiscal cliff, and its socio-economic ramifications to not only the sovereignty of These United States, but also the world at large.

But do you really understand the fiscal cliff and why it has become the center of Washington DC politics?

In order to understand the gravity of the situation looming ahead, It behooves us to first take a step back and understand some basic truths about the way our economy works, and how we have gotten into this mess.

There are 6 things that we need to understand:

1:
Any budget has two parts. The money that comes in, and the money that goes out. If more money comes in then goes out we have a surplus, moreover if more money goes out then comes in we have a deficit. Simple!

2:
In 2011 63% of all spending was on autopilot.(This is what they refer to as non-discretionary spending)  The money went out the doors without any vote by congress to pay for past promises. Social Security, Medicare, Medicaid, Farm Subsidies and of course the interest on the federal debt (This means that Congress spent the entire year arguing about the remaining 37%)

3:
Today one out of every four dollars goes towards healthcare. In 1960, before medicare and medicaid, only 10% of all federal spending went towards healthcare. We are now at 25% of all Federal spending goes towards healthcare. Unless something drastic changes we will see nearly 33%.

4:
Nearly 4 million people currently work for the federal government. If we were to fire every government employee we save about 435 billion dollars a year. This would not even cover a third of the deficit.

5:
In 2011 700 billion dollars were spent on defense. Our defense budget is now bigger then the spending of the next 17 countries combined. (China, Great Brittan, Russia, France, Japan Saudi Arabia, Germany, India Australia, Italy, Brazil, South Korea, Turkey, Canada, Spain, Israel and the United Arab Emirates)

6:
In 1981 the average family in the middle class paid 19.2% of their income to the federal government. In 2007 the average median tax liability for a middle class family dropped to 14.3%

If Federal revenue from the middle class dropped, and spending continued to climb, where did the extra money come from that was spent? For starters there have been significant tax hikes on the wealthy, and Congress borrowed the rest. 37 cents of every dollar spent in 2007 was borrowed.

This brings us back to the cliff. On January 1 2013 The  Bush tax cuts expire, effectively raising taxes on the wealthy, conversely there will be nearly 600 billion dollars in government spending that will be cut. In a time of deep recession this is fiscal suicide. If we do go over the cliff, it is widely agreed that GDP will drop overnight by 4%. This will unequivocally throw us further into an economic death spiral.