Fiscal Cliff 2013
DJ Industrial Ave Theoretical (m)
N/A: DJIA
May 24
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Last price15,303.10Prev Close15,294.50
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52 Wk Low12,101.4652 Wk High15,387.58
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Peter Schiff: If You Think the Fiscal Cliff is Bad, Just Wait
Forget the fiscal cliff, says economic expert Peter Schiff. This country faces a far bigger financial crisis.
While the failure of Congress to act to prevent or mitigate the fiscal cliff - the combination of tax increases and federal spending cuts due to hit on Jan. 2, 2013 - would slam the economy hard, Schiff says it would be preferable to the crash he foresees.
"It's not because we go over this phony fiscal cliff, it's probably because we don't go over that one because the government cancels the spending cuts, cancels the tax hikes, and instead we end up going over the real fiscal cliff further down the road," Schiff told Breakout recently.
Schiff, the CEO and Chief Global Strategist of Euro Pacific Capital, said the real threat to the U.S. economy is "where interest rates spike and we can no longer afford to pay the interest on the enormous amount of debt we have."
He also blamed the Federal Reserve's zero interest rate policy for making government borrowing too easy.
The national debt, fueled by annual budget deficits of more than $1trillion, crossed the $16 trillion threshold at the end of August. At current spending rates it will hit $17 trillion next June.
"We can't keep interest rates artificially low to stimulate the economy because it's the low interest rates that are the source of the problem," Schiff said.
That about a third of the U.S. debt is held by foreign countries such as China and Japan is a ticking time bomb.
"In fact, the real fiscal cliff comes when our creditors want their money back, and we don't have it," he said.
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CEOs, CFOs Voice Concerns over Crippling Fiscal Cliff
While the fiscal cliff might not be at the forefront of concerns for the average American, it is deeply affecting the spending and hiring plans of many businesses.
Four recent surveys show that corporate chief executive officers and chief financial officers are taking measures to prepare for the Jan. 2, 2013 actuation of the fiscal cliff.
According to a recent study by the Congressional Budget Office, this could easily take the U.S. economy back into another recession. Despite that threat, it appears less and less likely that anything will be done by the Obama administration and Congress to avert the crisis.
Needless to say, this has not gone unnoticed by the high level executive leadership of corporate America.
"This complete Mexican standoff that we have now is not getting us anywhere," Jim McNery, Chief Executive Officer of Boeing Company (NYSE: BA) said about the looming failure of Congress and the Obama administration to mitigate the impact of the fiscal cliff.
Business Feels Bearish
Since businesses see fiscal cliff talks failing to deliver progress, growth expectations of the country's biggest companies have fallen.
Members of the Business Roundtable, an association of chief executive officers, expressed in a recent survey bearish sentiment for every business measure (sales, capital spending and hiring).
From the results of this research, the Business Roundtable has lowered its projections for a wide range of economic indicators for its most recent CEO Economic Outlook Survey. These were registered at the lowest level since 2009, the nadir of the Great Recession.
Those closest to the fiscal operations of a company, the chief financial officers, are similarly bearish due in a large part to fiscal cliff 2013.
The CFO Signals Survey found that 47% of chief financial officers are more pessimistic about how well their company will do this quarter.
According to the survey, that sentiment represents the "most somber year-over-year expectations" ever in the history of that research report.
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CEOs and CFOs view hitting the fiscal cliff as a huge failure in the economic leadership from the elected political leaders in Washington, DC.
John Engler, the former governor of Michigan who is now the President of the Business Roundtable, compared the negligence to the recent standoff between the National Football League (NFL) and its referees.
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Fiscal Cliff: How Each Candidate Plans to Save Us
America is moving closer to falling off the dreaded fiscal cliff, but Congress continues to move at a snail's pace in addressing the pressing subject.
And while the nation waits for a resolution, the costs of doing nothing are rising, with U.S. taxpayers' money at risk.
Lawmakers have taken a "hurry-up-and-wait" stance, putting off until after the November presidential election any decision-making about the most crucial matter currently facing Congress.
At issue is whether to extend some or all of the Bush-era tax cuts and how to handle the nearly $1 trillion in spending cuts slated to kick-in starting Jan. 1.
If the expiration of tax cuts comes to fruition, the result will be the biggest tax increase ever levied on Americans (Taxmageddon 2013).
If the spending cuts start rolling out, thousands of jobs will be lost, our country's security will be put at risk, businesses will sorely suffer and programs that rely on government contracts will disappear.
With just a few weeks before ballots are cast for our next president, the looming fiscal cliff has become a heated topic on campaign trails. Falling off the cliff would undoubtedly thrust the struggling U.S. economy into a recession in 2013, a consequence neither contender wants to tackle.
So how do they plan to avoid the fiscal cliff? Let's take a look.
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Fiscal Cliff 2013: The Biggest Threat To Your Profits?
Fund managers aren't taking any chances with fiscal cliff 2013 - they're making sure their portfolios are ready now.
That's because global money managers view the looming fiscal cliff as the biggest current threat to investors' profits.
A new Bank of America Merrill Lynch Fund Managers survey this month revealed anxieties about the approaching and almost imminent fiscal cliff, which the country will go over Jan. 1 if Congress doesn't act, now for the first time in 18 months trump fears about the Eurozone sovereign debt crisis.
At the forefront are worries over trillions of dollars of spending cuts set to kick in at the start of next year that will threaten our national security, millions of jobs, and government-funded programs. Those colossal cuts will coincide with the expiration of Bush-era tax cuts which will amount to the biggest ever tax increase on American taxpayers.
The double whammy now has 35% of fund managers citing the fiscal cliff as the biggest danger to investments.
On the flip side, angst over the European debt mess as the top investment worry has waned to 33% from 48%. The drop follows the recent announcement of further support from the European Central Bank and its launch of outright monetary transactions (OMT), or bond buying, to reduce the cost of buying for bordering Eurozone countries.
The figures are from a Sept. 7-13 BofA survey of 253 managers who invest some $681 billion for clients.
Uncertainty surrounding Election 2012 has made the fiscal cliff effect a bigger threat.
"The upcoming election is putting these fears into sharper focus," noted Michael Hartnett, chief investment strategist at Bofa Merrill Lynch Global Research.
But instead of living in fear, you can feel safer by following the same preparation as some of the biggest global money managers.
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Fiscal Cliff Deals "Devastating" Blow to Defense
The potential effect of the fiscal cliff on our national security spending just became clearer - and more unsettling.
Friday, amid pressure from Congress, the Obama administration for the first time outlined how some $100 billion in spending cuts scheduled to take effect Jan. 1 will disrupt thousands of federal programs if no action is taken to avert the fiscal cliff.
The automatic cuts, known as sequestration, are a kind of threat Congress implemented on itself in the 2011 Budget Control Act. Yet, they were never meant to actually happen.
As White House press secretary Jay Carney explained in Friday's briefing, the idea was to make the cuts so objectionable that Congress would come up with a more acceptable way to reduce the deficit.
"The sequester was designed to be bad policy, to be onerous, to be objectionable to both Democrats and Republicans," Carney said.
The detailed report is aimed at putting Congress into action. The Office of Management and Budget clarified in its introduction, "The specter of harmful across-the-board cuts to defense and nondefense programs was intended to drive both sides to compromise. The sequestration itself was never intended to be implemented."
But to date, no concessions have been agreed upon and the perilous looming cuts are coming closer to reality. The announcement brings the U.S. nearer to going over the dreaded fiscal cliff, which scores of analysts say will thrust the economy into a recession in 2013 by draining mountains of money out of the already besieged economy.
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Fiscal Cliff Not a Priority for This Do-Nothing Congress
With the United States poised to topple over a recession-inducing fiscal cliff in January 2013, you'd think Congress would be frantically working on a solution.
After all, that's what we elected them to do.
The fiscal cliff is political shorthand for the combination of spending cuts and tax increases scheduled to hit Jan. 1, 2013. It's the result of the expiration of the President Bush-era tax cuts combined with $1.2 trillion in automatic reductions in federal spending made last summer as part of the deal to raise the debt ceiling.
But rather than focus on figuring out how to avoid the fiscal cliff, Congress members are focused on figuring out how quickly they can get out of Washington for their next recess.
"Everyone wants to get out of town - fast," a top Senate aide told Reuters.
That would be fine if lawmakers were just finishing a grueling summer session, but they just returned from a five-week recess. The current session will last just two weeks, and then Congress departs for another recess, possibly as long as seven weeks.
And what lawmakers have placed on the agenda for their abbreviated session hardly compares to the flashing-red-lights, sirens-blaring crisis the United States faces with the fiscal cliff.
Instead Republicans and Democrats will spend much of their limited time voting on bills and holding hearings designed to score political points they can use in their re-election campaigns.
The Democrat-controlled Senate plans to vote on jobs bills they know the House Republicans will reject; the GOP-controlled House plans to repeal Obamacare for the umpteenth time, which obviously will get nowhere in the Senate.
"Democrats appear ready to ride out the rest of the year spinning tall tales that the economy is doing fine while doing virtually nothing about the problems we face as a nation," Senate Minority Leader Mitch McConnell, R-KY, told Politico.
Rep. Chris Van Hollen, D-MD, called the GOP moves an "example of Republicans wasting time that should be spent on finding solutions to the country's problems. We're up to zero votes on Obama's jobs bills and more than 30 votes to repeal Obamacare," he told Politico.
Meanwhile, America edges closer to the fiscal cliff with each passing day.
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Fiscal Cliff a Far Bigger Threat Than Most Investors Think
The United States may or may not go over the fiscal cliff in January, but few investors are taking the possibility seriously enough.
That's the message Goldman Sachs (NYSE: GS) chief U.S. equity strategist David Kostin had for his clients in a recent note.
He believes investors are not focusing enough on the potential impact of the fiscal cliff, which could set the stage for jittery markets akin to last year when the debt ceiling debates sent stocks tumbling.
When it comes to anticipating the impact the fiscal cliff will have on markets, "portfolio managers have been swayed by hope over experience," Kostin recently said in his note.
Kostin compared the current situation to last year's debt ceiling crisis when Congress waited until the eleventh hour to reach a deal.
"Investors were stunned and the S&P plunged 11% in 10 trading days (and more than 17% from the level one month prior to the deadline)," Kostin said. "Eventually Congress reached a compromise on raising the debt ceiling."
"We believe the uncertainty is greater this year than it was 12 months ago," Kostin said. "Political realities and last year's precedent suggest the potential that Congress fails to reach agreement in addressing the "fiscal cliff' is greater than what most market participants seem to believe based on our client conversations. In our opinion, equity investors seem unduly complacent on this issue."
The market rally enjoyed this month is a markedly different from last year's showing as markets skirted past the one-year anniversary of the debt ceiling face-offs. But Kostin says the S&P 500 is headed for a fall-and a steep one at that.
Kostin warns: "Assigning a P/E multiple to various fiscal cliff and earnings scenarios is difficult because ultimately we expect Congress will the address the situation. But investors must confront the risk they may not act until the final hour."
His year-end target for the S&P is 1,250; quite a bit lower than the current 1,424.
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Fiscal Cliff 2013 Will Bury Debt-Ridden U.S. Cities
With fiscal cliff 2013 approaching on January 2, it is struggling U.S. cities that stand to suffer the most if Congress fails to help.
These U.S. municipalities are already in terrible fiscal shape due to the effects of The Great Recession. Now they're facing the effects of automatic tax increases and deep spending cuts of 9%, about $560 billion in total.
Like Gramm-Rudman-Hollings from 1985 that imposed automatic spending cuts, these powerful one-two combinations will floor cities that have unwisely come to rely on federal aid.
"Cities are going to be facing very rough waters for the next couple of years," predicted Michael Pagano, dean of the College and Urban Planning and Public Affairs at the University of Illinois-Chicago.
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Fiscal Cliff Could Cost You Your Job
While Americans stash extra cash to prepare for the economic effects of the looming fiscal cliff in 2013, another more immediate concern has developed: How many people will get laid off as companies brace for spending cuts and tax hikes?
The fiscal cliff will pack a double whammy to some businesses. Companies in certain tax brackets will be paying more to Uncle Sam, while some will see their government funding disappear.
The substantial fiscal cliff effect has prompted firms to rein in spending, delay projects, defer bids - and cut staff.
In fact, a study last month from Ernst & Young, the National Federation of Independent Business, the U.S. Chamber of Commerce and other business advocates revealed the fiscal cliff could slash 710,000 jobs from the already beleaguered job market.
