The fiscal cliff explained (with help from Hollywood)
Anyone not seen the movie "Thelma & Louise?"
Spoiler alert! There’s a key scene in the movie where the gals are driving dangerously fast towards the edge of a cliff.
So let me tell you about these two ladies. Thelma is a relatively wealthy woman who was a grateful beneficiary of the Bush tax cuts. Louise is a government servant -- she works in the Defense department.
The car is the economy -- and like all cars, it needs to be maintained. It needs its oil changed once in a while, and it needs the brakes done.
Come December 31, a couple of things have been baked into the economic calendar. Right now, unless Congress pulls the cake out of the oven beofre year's end, the Bush tax cuts will expire, and a whole bunch of government jobs -- particularly in the Defense department -- will be cut.
When those tax cuts expire, Thelma’s taxes are going to go up. She’s going to have a lot less money to spend. When those spending cuts hit, Louise is going to lose her job. So she’s also going to have a lot less money to spend. And our economy depends on people spending in order to grow.
It’s a bit like Thelma and Louise running out of the money they need to change the oil and fix the brakes on their Mustang. The fear is those cuts will reduce consumer spending so much that instead of going up the slight incline we’re on right now, the economy will go right over a cliff. No matter how hard we stamp on the brakes.