That Fiscal Cliff...
It seems as if political saber-rattling has once again put our economy in a position to deteriorate. A potential fiscal cliff is looming around the corner if some kind of agreement between Democratic and Republican lawmakers is not met concerning the expiring tax breaks and expected spending cuts. The stakes are high; the Congressional Budget Office has predicted the United States would plunge back into a recession at the start of 2013 if an agreement is not met.
Indeed, the ramifications of a fiscal cliff in 2013 would be daunting. In the worst case scenario, it will result in a cost totaling $665 billion, or more than 4 percent of the economy.
The potential for a fiscal cliff has not gone unnoticed. Recently, the IMF Managing Director, Christine Lagarde, urged the U.S. to remove the threat of the fiscal cliff; an IMF statement has stated that the a fiscal cliff amounting to 4% of the U.S. GDP "could reduce annual growth to well below 1 percent, with negative growth early next year and significant negative repercussions on an already fragile world economy."
Also, a recent survey by Morgan Stanley found that 65% of global investors and 71% of respondents in the U.S. think the “fiscal cliff” will cause significant uncertainty in markets for the rest of the year.
Although the chances of lawmakers actually allowing the fiscal cliff to occur are slim, it is evident that the mere continuation of the threat of a fiscal cliff is detrimental to the U.S. and the world.