Earlier today Tuesday, November 13, 2012, I received an e-mail from Mary Huss, the Publisher of The San Francisco Business News reporting the statement made by Bank of America’s CEO, Brian Moynihan pointing out his concern that the looming “Fiscal Cliff” is hurting the economy.
Fiscal Cliff is a term applied to the aftermath of the piling debt, despite attempts of making funds in available through higher taxes and additional cuts within the $600 Billion Federal budget, should Congress fail to provide a long-term solution, following the Budget Control Act that it passed in 2011.
Forbes magazine has described the Fiscal Cliff by comparing this event to the weather, in the case of Hurricane Sandy at the end of October 2012. Forbes’ view was that suppose Hurricane Sandy had additional contributing factors such as multiple cold fronts and additional force, then its effect would be much more powerful, than actually experienced.
An alternate simple comparison explanation of Fiscal Cliff, that I can think of, is like a one-lane bridge along one of the foggiest portion of California Highway 1, with speed limit of 55 mph, with the absence of any regulatory signs such as “Yield,” “Reduce Speed,” “One-Lane Bridge,” or “Stop” on either side of this one-lane bridge.
At first, when I saw the term “Fiscal Cliff,” the first possible explanation that came to mind was the image of the falling of folks carrying big bags of cash, like Santa Claus carrying a big bag of toys on Christmas Eve.
Granted that the economy has been slowly improving at the same rate as molasses, the recovery within the economy has been slow and gradual, especially in the state of California after the November 6, 2012 elections, which include Proposition 30 on California’s ballots in order to raise revenue for California public schools. In the state of California, Proposition 30, which passed by the state’s voters by 53.9%, authorizes the state to increase taxes on sales, also income taxes for higher tax brackets.
The supporting views for Proposition 30 focused on the raised revenues in order to protect the public school programs. Opposition pointed out that this increase would hurt the already-struggling economy and provides a Band-Aid to the situation without fixing the root causes. Also concerns were raised in regards to underperforming schools receiving additional funds from the increased taxes.
By increasing the sales tax, the concerns would include consumers spending more through the tax increase, or less, should the consumer decide not to spend at all. Thus, the delay within companies’ spending that includes expansion, hiring, and investment have been further stalled.
Indeed, the banks are the entities that are able to view trends within customers’ spending and savings. In this case, customers are appearing to reeling into the reins in regards to their funds. Also, the banks are the first one to observe the business use of credit or loan applications.
As I’m finishing this article on Wednesday, November 14, 2012, additional talk has been focused on the Fiscal Cliff, which included President Obama delivering his public address assuring the public that he will continue to work with Republicans and other members and is open to ideas and suggestions.
Also, earlier this morning, I attended an Executive Networking Breakfast series, sponsored by the BYU Management Society of Silicon Valley in San Jose, the guest speaker, Alan Olsen, Managing Partner of Groco, LLP, whom served on Mitt Romney’s National Finance Committee during his run for President, commented that this time is important for us all to focus on paying off debts.
After thinking about this, a possibility considered whether United States of America choose Chapter 9 Bankruptcy protection, like other cities in California such as San Bernardino, Stockton, and Mammoth Lake had accomplished in 2012? After thinking about this for a second, this did not seem like a viable option since this may open up many types of vulnerability on an international scale, which may be applicable to international debtors.
The next idea was for the entities with debts to merge with stronger and financially solid entities. This idea stemmed from one of the non-profit organizations, where I’ve served as the Treasurer of. This organization merged with another non-profit organization and made the latter organization stronger, thus forming coalition and debt-free non-profit entity. Since my experience was on a much smaller scale, would this idea be applicable to larger corporations or government entities?
Calvey, Mark. Bank of America CEO says fiscal cliff already hurting economy. San Francisco Business Times, Published November 13, 2012. Retrieved November 13, 2012 from http://www.bizjournals.com/sanfrancisco/blog/2012/11/bank-of-america-fiscal-cliff-economy.html?ana=e_du_pub&s=article_du&ed=2012-11-13
Ungar, Rick. The Fiscal Cliff Explained. Forbes, Published November 10, 2012. Retrieved November 13, 2012 from http://www.forbes.com/sites/rickungar/2012/11/10/the-fiscal-cliff-explained/