More and more Americans have voiced concern over the U.S. economy barreling toward "Recession 2013."
Fears were fueled by a May 22 Congressional Budget Office (CBO) report that claimed the scheduled year-end tax increases and spending cuts (known as Taxmageddon and fiscal cliff) will be followed by a U.S. recession.
Congress has until the end of the year to change the course of the U.S. economy, although the longer it waits, the more volatility could creep into markets.
"The markets don't want to wait until Dec. 31," Peter Fisher, senior managing director at BlackRock Inc., and a former Federal Reserve and Treasury official, told Bloomberg Television May 30. "Congress is going to have to wake up in October when the markets start pricing in the uncertainty of a recession in 2013."
But there's another big factor at play: Election 2012.
Politics and Recession 2013
As Steve Strauss, an Advanced Leadership Fellow at Harvard University, recently detailed for The Huffington Post, while one presidential candidate will likely lead us into a recession, the other will make us broke.
If incumbent President Barack Obama is re-elected, said Strauss, America will get deficit reductions, but also a certain recession in 2013.
If President Obama is re-elected, it's almost a given that Congress and the president will not agree on any negotiated revisions to the tax and spending changes between November 2012 and January 2013.
That means the country is destined for a deficit reduction, which will set off a recession.
The good news is that the programmed spending cuts would slash America's budget deficit some 40% next year, and will start to trim down our ballooning national debt as a percentage of GDP by 2015.
If GOP hopeful Mitt Romney is voted in office, the United States will avoid a recession through increased deficit spending – but the country will be on course for bankruptcy.
Should Romney win, he has vowed not to cut the deficit in his first year, to extend and expand the business-friendly Bush tax cuts, and to increase Pentagon spending.
But it's unclear where the Republicans will come up with enough alternate spending cuts to make up for the decreased revenue and increased spending.
In fact, Republicans' budget proposals have failed to add up, being off trillions of dollars.
Romney, however, is determined to avoid a recession, unlike President Obama.
"If you take a trillion dollars for instance, out of the first year of federal budget, that would shrink GDP over 5%," Romney said earlier this year. "That is by definition throwing us into recession or depression. So I'm not going to do that, of course."
According to Strauss, Romney's debut year in the White House would create a deficit at least $600 billion larger than that under President Obama's White House. Strauss said it could swell to as much as $1 trillion larger when Romney's new tax cuts and Pentagon budget increases are factored into the equation.
Romney's enormous expansion of the federal deficit would stave off a recession, Strauss noted. It might even launch another economic bubble – but it may also chart a course for economic collapse.
We still have months before the election. In the meantime, as the Federal Reserve begins its two-day meeting today, many anticipate a third round of quantitative easing (QE3) or a similar attempt to stave off recession.
Related Articles and News:
- Money Morning:
President Obama Urges Action Amid Recession 2013 Fears
- Money Morning:
Recession 2013: This Report Shows We're Already Headed There
- Huffington Post:
Presidential Election Choices: Recession In 2013 or Spending Faster Toward National Insolvency