One Word Solution for the Fiscal Cliff

Moody’s warns that the US credit rating could go down a notch (joining the S&P downgrade from last year) if the US fails to take appropriate medium-term action. They write as follows (via Politico):

“If those negotiations lead to specific policies that produce a stabilization and then downward trend in the ratio of federal debt to GDP over the medium term, the rating will likely be affirmed and the outlook returned to stable,” Moody’s said in a statement. “If those negotiations fail to produce such policies, however, Moody’s would expect to lower the rating, probably to Aa1.”

In many ways this is not very helpful. One of the key disputes over budget policy is what will do most to help in various time frames. Some want immediate austerity while others prefer short-term growth to assist a medium term solution. Moody’s provides a warning to “get busy” but no one knows how they will evaluate various alternatives.
And who elected them, anyway? It is not as if the ratings agencies have a stellar record on such matters.
With this background in mind, there is a pretty easy, one-word solution to the Fiscal Cliff. Let us start with one of the helpful interactive tools from The New York Times.
The page shows the count of words spoken by each party at the conventions. These simple quantitative measure are often deceptive, but the tool provides key speeches and also something quite clever:
You can insert your own word and discover the count!

I invite readers to try their own words and share the results with us, but you have a tall order if you want to match my suggested word: Compromise.
The mentions were 2-1, and I mean actual count, not a ratio. The notion of progress through compromise is missing in action right now.
And that is the one-word solution. How long must we wait?

This post was originally published at A Dash of Insight and is reproduced here with permission.

3 Responses to "One Word Solution for the Fiscal Cliff"

  1. Burk   September 12, 2012 at 11:42 am

    Yes, who elected them anyway, those criminals who certified the MBS toxic waste as AAA? They have no leg to stand on.

    And they are wrong here as well, of course. US solvency is not affected by federal debt ratios in any way. We print the money and can make as much of it as needed. US solvency is only affected by political breakdown- the unwillingness of either side (and you know which one!) to honor US obligations.

    And macro-economically speaking, we need more debt, not less. At any rate, we need more government spending, not less. When inflation rises and government spending is too high, we can take steps at that point. But note that Japan has been in a deflationary holding pattern for two decades- the future we have to look forward to if we have insufficient economic growth and government spending. Their public debt is not their problem- their lack of growth is. They have been downgraded by the ratings agencies, with no effect at all, since the ratings agencies do not know what they are talking about.

  2. paulie46   September 13, 2012 at 8:48 am


    Compromise what? Lets increase spending by decreasing spending. Great idea.

    "Some" want to cut the deficit by cutting spending. That would be like photoshopping a picture of a collapsed bridge to fix the damage caused by the collapse.

    The budget deficit is an ex-post accounting result. The deficit can only be reduced by increasing growth. Real growth requires increased spending, TINA. Anyone that claims otherwise is self-identifying as an idiot.

  3. Robert P. Coutinho   September 13, 2012 at 9:47 am

    MMT: gotta love it! It shows that there is no expansion of the economy w/o public debt (since private cash borrowed is offset with the debt obligation, so no net increase in money). We, as a nation, have got to get some people into the financial framework (i.e. Federal Reserve, Treasury) who actually understand what having a fiat currency that is not pegged to anything means! If we don't, they will take us up the proverbial creek without even the boat, never mind the paddle!