Fiscal "cliff" is the wrong metaphor. What's about to happen is not the end of the world, as falling off a cliff would imply. A better metaphor is America is about to head into a "fiscal cold shower."
This is what Britain willingly did to correct its fiscal crisis a couple of years ago. It hasn't been pretty, with severe cuts to everything and tax hikes to the wealthy, but has arguably averted a bigger crisis.
America's day of fiscal reckoning has been postponed because of the rise of the Tea Party anti-state movement. Behind this 19th-century libertarianism is, unfortunately for Canada, the Koch brothers of Wichita, who are also champions of the postponed Keystone pipeline from the oil sands to their refineries and others.
They bankrolled the Tea Party, candidates and "think tanks" with tens of millions of dollars to bring about their vision of America: Everything privatized and every "man" for himself.
Their political operatives have embedded themselves in the Grand Old Party, or Republicans, and voted against any and all increases in taxation or spending. They have succeeded in holding the party hostage.
As Canada's Ambassador to the U.S., Gary Doer, put it recently: "One-third of the Republicans are Tea Partiers, one-third are worried about the Tea Party and one-third are traditional dealmakers."
Put another way, they are the tail-wagging the tail in Washington.
On Thursday they won again when allegedly moderate Republican House leader John Boehner announced he could not get any compromise whatsoever out of his ranks to avert the "fiscal cold shower." This is despite an election that was resoundingly lost.
Consider the irrationality of their position:
1. The Republicans will only agree to return to Clinton-era taxes for those with $1-million or more incomes.
2. President Obama just won a landslide re-election (a popular vote victory of nearly five percentage points at the final count) to return to Clinton-era taxes for those with $250,000 a year or more incomes.
3. Even so, President Obama agreed to a compromise that would return Clinton-era tax rates for those with incomes of $400,000 a year or more.
3. The Democrats also won five more Senate seats in the November election, giving them clear control of the upper house.
4. A USA TODAY/Gallup Poll recently showed a nearly 2-to-1 margin of Americans approved of Obama's handling of the negotiations over Boehner's.
5. A CNN/ORC International survey this week showed that 53 per cent of Americans consider the Republican policies too "extreme" -- a disapproval rate that is 17 per cent higher than in 2010.
6. Other polls show that the public will blame Republicans if a deal isn't made.
7. Business leaders, who have marketed and advertised in support of a deal to fix the fiscal house, have failed to move the Republicans, which used to be the party of business leaders. This is why the "fiscal cold shower" likely begins on Dec. 31, 2012.
The Tea Partiers cannot stop the reinstatement of $500 billion worth of Clinton-era tax hikes or the launch of automatic spending cuts of $100 million a year in Medicare and $100 million in Pentagon cuts. Congress and Obama agreed to this in August 2011 to try and force an end to the logjam over the debt ceiling back then.
Financial markets have been correcting to cushion its looming effects. But the view of major financial players, such as Fidelity, believe that it's a good-news-bad-news scenario. In a newsletter this week, Fidelity stated: "Such policies would reduce the budget deficit and begin to address the nation's increasingly worrisome debt situation."
But Fidelity forecasts four possible outcomes: Congress and Obama will "punt" or agree to kick the can further down the road for a month; they will agree to a modest compromise on some tax and spending provisions; less like is they will not agree and the country will go "over the cliff"; they will rise to the occasion and forge a "grand bargain" by December 31.
My guess is a "punt" because Boehner obviously cannot deliver anything because of the Tea Party's grip on his caucus.
This should not surprise anyone and has been the case since 2010 when the Kochs embedded their libertarian saboteurs. By definition they cannot compromise and never will. Frankly, they were elected to be this way by constituents who live mostly in rural, lower-income portions of the United States.
They are zealots with unbending convictions, which is fine, but the Republican party is completely ignoring the democratic will of the people on the basis that most Americans will reward their fight against tax hikes of any kinds.
That's untrue. A revealing poll this week (sponsored by the Ruebhausen Fund and conducted by YouGov) showed that Americans would support a "grand bargain" of higher taxes, cuts in government services and military downsizing while preserving Medicare and Social Security.
This means if the tail wags the tail of the dog, then it's into the shower we go. And while uncomfortable in the short run, this may be the only fix in the long run.
* This article previously appeared in the Financial Post
