The Cliff

Source

  The US fiscal cliff - BBC

The most likely outcome, in my view, is a minute-to-midnight fiscal cliff compromise, with lawmakers loudly claiming victory along partisan lines, while covertly agreeing to delay any fundamental decisions about how to tackle America’s perilous fiscal future.

I would also predict, though, that investor angst over the cliff is rapidly replaced by concern about the US “debt ceiling” and that the current dispute turns out to be just a dress rehearsal for a much more serious row – one that really could destabilise global markets. 

The inconvenient truth is that the US will also hit its federal borrowing limit on the first day of 2013 – leaving just a few weeks of “extraordinary measures” before an agreement on that is also required. 

The Republicans may try to use the debt ceiling to force more spending cuts, as they did during a lengthy stand-off in early 2012.

 Liam Halligan, Telegraph

 

 

Why would either side risk going over the cliff? Because there are greater issues than simply avoiding a recession in 2013. 

The real issue is the deficit. The leaders of both parties recognize that the current path spelled out on our fiscal balance sheet is unsustainable. 

The deficit must be brought under control (which is not the same as the budget being balanced), or we will find ourselves all too soon in the situation now facing much of Europe and Japan.

John Mauldin