If the auto industry fails, the country will fail. Ok, so the politicians (both sides) and the traditional media did not say those words exactly, but that's what was communicated. So, the federal government intervenes. GM bond holders got screwed and the tax payer just recieved the final accounting for the transaction....opps we lost $10 billion on the deal.
But we can not allow GM to fail, it is "to big to fail". So, what would happen if GM failed? What happened when Hostess went under? Simple, an orderly dispossesion of assets, sold at fair market value to those who believed that the asset could be used productively. The same thing would have happened with GM. The market would have cleared the assets in an orderly fashion with out the need for federal intervention. And yes, people would have been "hurt" - financially, emotionally ect., but life is hard.
So, what happens if we go over the fiscal cliff? Nothing. Federal spending is cut, taxes will rise. People, all people, will adjust and find a new equilibrium, a balance for their life and we will just keep going. Those who end up paying more taxes, will pay more taxes.....and adjust. Those who are affected by the loss of federal dollars will will adjust. The capacity for individuals to adapt is grossly under estimated. We will survive, regardless of what politicians and the media say. People, especially Americans, have a tremendous capacity to make things work. Sadly, that capacity is being diminished by the people we elect and the people we listen too.
Will the world come to an end if we go over the cliff? No. Will the economy go in the tank? Nobody knows, and that is the point. We just don't know what will happen to the economy, but we will survive.
