Fiscal cliff has nothing to do with a cliff or slope or butte or any other kind of geological formation… more like ‘fiscal folly’ or ‘taxmageddon’ or ‘debt reckoning’ or ‘fiscal deadline’
Fiscal cliff is deeply misleading term and actually it’s more like a fiscal slope, or better yet austerity gridlock. According to Edward Krudy; the fiscal cliff sounds like a scary place with headlines about taxmageddon are flashing on TV screens, next to clocks ticking down to January 1.
The Dow Jones Industrial Average has skidded over the last month, largely due to concerns about the standoff in Congress over– how to stop a barrage of tax hikes and spending cuts. But some major investors say the doomsayers are getting too much attention and cliff watchers should relax a bit. These investors argue that the U.S. economy does not face immediate disaster even if lawmakers can’t reach a deal by the end of year. There is time for lawmakers to come up with a deal before major damage starts to be done, in early 2013.
According to Warren Buffett; the fact that [lawmakers] can’t get along for a month or so is not going to torpedo the economy. In short, what has been dubbed ‘cliff’ is more like a fiscal ‘slope’ that gets steeper as time goes on: How far the U.S. economy slides down the slope depends on how quickly lawmakers take to do a deal. The problem is that if no agreement is reached, current law will slash deficits by sharply raising taxes and gutting spending…
In the article How Important is the Fiscal Cliff? Hint: Not Very by Barry Ritholtz writes: The fiscal cliff paranoia continues unabated. Just search the Internet with the term ‘fiscal cliff ‘ and the term’s appearance simply goes ballistic. But, what does the fiscal cliff mean? Let’s start with a definition: The term refers to the deal that Congress made in late 2011 to temporarily resolve the debt ceiling debate. The sequestration, as it’s known, calls for three elements: tax increases, spending cuts, and an increase in payroll tax (FICA).
The Washington Post’s Wonkblog has run the numbers and finds: $180 billion from income tax hikes, $120 billion in revenue from the payroll tax, $110 billion from the automatic spending cuts and $160 billion from expiring tax breaks and other programs. That is a not-insignificant amount of money, but it is hardly end of the world. To put this into context, it’s little less than the TARP bailout for Wall Street in 2009 and somewhat less than the American Recovery and Reinvestment Act (stimulus package).
An educated guess puts this at about $600 billion to $700 billion out of $15 trillion (size of U.S. economy). I’d ballpark that at about 4% of GDP or 0.50% of forecasted GDP growth of 2% for calendar 2013. The term fiscal cliff is really misnomer, as several analysts have correctly observed, and the effects of sequestration are not a Jan. 1, 2013, event. The impact of the spending cuts and tax hikes would be phased in over time. Additionally, as students of history have learned, single-variable analysis for complex financial issues is invariably wrong…
In the article Big Business of the Fiscal Cliff by Anna Palmer and Kate Brannen write: The fiscal cliff is big business in Washington, DC: Lobbyists, grassroots firms, accountants, lawyers… are raking in cash as Congress and the White House argue about how to avoid a fiscal calamity at the end of the year– threatening spending cuts, tax hikes and changes to entitlement programs.
It’s a classic Washington, DC phenomenon: Ahead of major deals, corporate clients and other groups pay a premium to Washington influence machinery to make sure their interests are protected. Republican and Democratic consultants say the recent surge in newly inked contracts is particularly good news, since the presidential election had meant a slow six months in town. Now, it’s springtime in Washington, DC in January, said Rich Gold, head Holland & Knight’s public policy practice. Everybody has their nose under the tent surrounding the fiscal cliff…
In the article How Far Over the Fiscal Cliff Could They Go? by Connie Cass writes: The dealmakers who warn that a year-end plunge off the fiscal cliff would be disastrous don’t seem to be rushing to stop it. Why aren’t they panicking? For one thing, Dec. 31 deadline is more flexible than it sounds. Like all skilled procrastinators– from kids putting off home work to taxpayers who file late– Washington, DC negotiators know they can finagle more time if they need it.
That doesn’t mean delay would be cost-free– stock markets might tank if 2013 dawns without a deal; however, pushing deadlines too far is a risky strategy… The Congressional Budget Office (CBO) predicts that fiscal cliff policies, if left unchecked, would spark a recession later in 2013 and send the unemployment rate above 9% by fall. How long could negotiators balk and bicker before putting U.S. economy in jeopardy? The calendar becomes less and less forgiving as the weeks pass. Here is a procrastinator’s guide to pushing the deadline:
- DECEMBER: Democrats and Republicans say it’s critical to reach a deal this month. Yet both sides appear dug-in over taxes. A good chunk of the fiscal cliff–the automatic spending cuts known as the sequester is an artificial deadline created by Congress in hopes of forcing itself to come up with a deficit-cutting plan.
- JANUARY: If there’s no deal in December, the economy won’t fall off a cliff on New Year’s Day. But it probably will begin a bumpy downhill ride. The new Congress that convenes Jan. 3 won’t look much different, divided between Republican-controlled House and Democratic-dominated Senate. However, lawmakers will feel more heat… According to Mark Zandi, chief economist at Moody’s Analytics; thinks the economy could weather a few more weeks of uncertainty as long as negotiators appeared to be working toward an agreement.
- FEBRUARY: What might finally get procrastinators moving if nothing else does is the ‘fear’ of U. S. defaulting on debts for first time ever. Unless Congress acts, government is expected to hit its legal borrowing limit of $16.39 trillion by the end of December. In the last debt limit showdown, the government came within a whisker of default, in August 2011, before a compromise was reached. At that time, Standard & Poor’s down-graded the nation’s credit rating. Like wise, if again we come to edge of default, then that would probably send the stock market plummeting, and for sure finally shake-up the lawmakers…
In the article What If the Fiscal Cliff Is the Wrong Cliff? by Robert Wright writes: One premise of the people who instigated the fiscal cliff, in effect; committed Congress to either make big inroads on the deficit or have big inroads made automatically– meat-cleaver style. But is government debt the central economic problems. What if, they’re wrong? What if, public debt isn’t the main problem? What if, the public debt is such a small part of the overall problem that we’re setting ourselves up for disappointment? What if, we make lots of budget cuts only to find that the long-term benefits, while real, are dinky in the scheme of things, and there’s a much bigger problem that’s been left unaddressed?
That’s the view of some analysts whose voices aren’t getting much airtime amid all the freaking out about the fiscal cliff. They say, private debt, e.g., mortgages, credit card bills, business loans… is much bigger problem than public debt… and, we’re going to have to confront it before we truly recover from the recession.
According to report by Steve Clemons and Richard Vague; private debt is higher as a share of America’s GDP than anywhere in Europe. So what do you do when your economy is burdened by a huge debt overhang? How about we just forgive the debt? That may sound simplistic, but, actually, there tends to be an element of out-and-out debt forgiveness, for example; debt restructuring’ or debt relief.
People are starting to talk about doing this sort of thing on large-scale, for example; Martin Wolf, chief economist at the Financial Times, agrees with Vague and Clemons that– the private debt problem dwarfs the public debt problem, and something must be done about it in form of debt relief. Obviously, debt forgiveness is more popular among debtors than among creditors.
An According to Martin Wolf and Richard Vague; we’ve got to help people get out from under the mountain of debt that looms, barely seen, beyond the fiscal cliff…
In an article by Sarah Michael and Chris Paine writes; fiscal cliff sounds like a banjo player from a long-forgotten bluegrass band. But, the global economy’s term du jour is serious business. At the simplest level, there are a lot of spending cuts and tax hikes that will come into effect– at midnight December 31, or January, or February, or some time soon…
Many people are worried that if they all take place at once U.S. economy will slide into recession. It boils down to this; U.S. is in lot of debt: It makes about $US2.3 trillion/year, but spends about $US3.6 trillion. So, somehow, it has to slash $1.3 trillion. But if all the scheduled changes happen together, the Congressional Budget Office predicts the GDP will drop by 0.5% next year, plunging the U.S. into recession, which means unemployment rate may rise to 9.1%.
That’s loss of about two million jobs– not good. So, what are Democrats and Republicans planning to do about all this? Well, there is a lot of arguing: Republicans want to slash spending but avoid raising taxes. Democrats are looking to raise taxes and avoid too many spending cuts. What happens now? According to some experts, there are three main options:
- They [lawmakers] can let all the planned changes come into effect.
- They [lawmakers] can cancel some or all of the tax hikes and spending cuts.
- They [lawmakers] can agree on a middle ground.
The latest news– talks over a compromise are frozen… Yikes. That’s not good…