Five with Fitz: What to Expect If We Go Over the Fiscal Cliff
Here's a few that really caught my attention. Not surprisingly, one of the biggies deals with the fiscal cliff.
Q - What happens if we go over the "fiscal cliff"...really? - Jerry S.
A - Nobody truly knows Jerry. However, here are five things I expect to happen as a result.
First, the U.S. goes back into recession. The CBO (Congressional Budget Office) suggests there will a 0.5% contraction if the government can't stop both the debt and the spending cuts. That's a huge drop from the 2% growth it presently expects.
I think both numbers are complete fantasy, incidentally. The government missed this crisis in formation and they are flying blind now. How on earth they can predict 2% growth right now defies any sort of logic whatsoever. Then again, we are talking about the federal government. Sigh.
If we go over the fiscal cliff, I'm expecting as much as a full 1% contraction. And growth under the circumstances will hardly be normal, let alone 2% for years to come. The fiscal cliff and our politicians' unwillingness to do anything about it other than kick the can down the road so far makes it clear to me that America is going to struggle with the legacy of decades of bad fiscal policy for years to come -- just like Japan has for more than two decades.
Second, I think companies are simply going to vote with their wallets under the circumstances. Many are already hoarding dollars and announcing changes to operations following the election, but now they're going to cut back further on capital spending.
At the same time, the fiscal cliff will reduce foreign direct investment into the U.S. because many companies will shift their attention to other markets where there is more certainty.
Third, the unemployment rate will rise, housing markets will reverse course, and the Fed will engage in yet more meddling and more money printing. It will no doubt be well intentioned, but simply digs America further into a hole.
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