The Fiscal Cliff

Since the election ended in the United States the news channels, both here and across the boarder, have been talking about nothing except the pending Fiscal Cliff. Not as much as a peep about it prior to the election but the cliff is all that most news organizations want to prattle about today.

What is the Fiscal Cliff?

The Fiscal Cliff will take place on Jan 1, 2013 when pre-determined tax cuts and breaks end and pre-determined spending cuts start. Type Fiscal Cliff into Google and you can find countless stories and articles. The fear is that this “cliff” will not be dealt with in time and the United States will fall back into a recession. It is estimated that millions jobs would be eliminated and millions of dollars being spent in the economy would evaporate due to these cuts and tax increases. When the U.S. sneezes, Canada gets a cold. If the US falls into another recession it could/can pose a problem for our own economic recovery. If anyone was watching the market volatility the past week, most of it seems to be connected with the Fiscal Cliff.

If the U.S. drives over this cliff, one good point would be that the deficit could be drastically cut, some estimates say as much as 50%.  However, it would happen so severely many feel the economy could not handle it in the short term.

Why are we at this cliff?

The “cliff” has been known for sometime but with the Presidential election taking place in November, it was not in the Republicans best interest to lend a hand to the Democrats to address this problem ahead of time. Why would they want to go into an election helping stave off an economic disaster? This is called Partisanship and there has been plenty of it from both sides.

Can this cliff be avoided?

Much like Aug 2, 2011 when the U.S. government went to the 11th hour to raise the debt ceiling, one can expect the same dramatics this time around. The two parties, with mid term elections 2 years away, can work together to find some kind of solution. They may take it to the wire or the solution could come days after Jan 1, 2013 but common sense says there will be some sort of solution, perhaps temporary or short term. You can see it is in no ones best interest to have the U.S. economy fall back into a recession. Neither party wins at this stage.

 

Written by Scott Wallace

Scott Wallace has been in the Insurance and Investment industry for the past 19 years. His role is to take what is important to his clients and help them make those dreams a reality. Scott is a CFP, CLU and a Qualifying and Lifetime Member of the Million Dollar Round Table.

2 Responses to The Fiscal Cliff

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  2. weedphotos says:

    The explanation about the Fiscal cliff is not up to the mark. I was unable to understand the article. Could anyone help me understand about Fiscal cliff in a better way? I am eagerly waiting for the reply. Thank you.

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