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fiscal cliff

How the Fiscal Cliff will Deal a Blow to U.S. Defense Industry

By , Contributing Writer, Money Morning -

The fiscal cliff is taking down more than U.S. taxpayers - it will tear through the U.S. defense industry.

At the end of this year, current tax policies are set to expire and new ones will go into effect at the start of 2013. What Americans can expect if the policies are not extended is a painful combo of tax increases and spending cuts that will thrust the struggling U.S. economy back into a recession.

If U.S. lawmakers fail to act, scores of economists agree what we'll get is a $600 billion drag on the already sluggish economy. The tax implications have been widely discussed, but there has been little chatter about the impact on the defense sector, which stands to sorely suffer since it is subjected to half of the proposed spending cuts.

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What is the "Fiscal Cliff"?

By , Money Morning -

Now that we've explored the dangerous repercussions of the looming Taxmageddon, investors have another important question: What is the "fiscal cliff"?

Fiscal cliff anxiety has increased since May 22 when the Congressional Budget Office spread some gloom and doom by citing a potential 2013 recession.

As we reach 2012's midpoint, we still have November's presidential election and a ticking clock for Congress and the president to reach an agreement on policy issues by year's end.

The likelihood of this doesn't look good. That's why now's the time to prepare for the potential effect from the fiscal cliff.

What is the Fiscal Cliff?

You can thank Federal Reserve ChairmanBen Bernankefor coining the phrase.

Fiscal cliff refers to the coinciding action of tax increases and spending cuts that will activate on Jan. 1, 2013 unless Congress and the White House agree and take some action to either delay or change them.

Should these two actions marry, you'll watch $7 trillion tagged onto the nation's debt over the next decade, or about $500 billion next year, according to CNN.

How will investors be impacted?



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How I Learned to Stop Worrying and Love the Fiscal Cliff

By , Associate Editor, Money Morning • @DavidGZeiler -

Taking a header off the "fiscal cliff" might be the best thing that could happen to the United States.

It sounds crazy, given all the dire predictions economists are making about the "Taxmageddon" that will arrive on Jan. 1, 2013.

While true, no one is talking about what would happen to the economy after the fiscal cliff crisis of 2013.

If Congress fails to act and allows all the bad things to happen - the expiration of the Bush-era tax cuts and the payroll tax cut, as well as the enforced spending cuts (sequestration) agreed to in the budget deal last year - the federal budget deficit would start shrinking dramatically.

And the fiscal discipline, while brutal in the short run, would jump-start the economy by early 2014.

It's all in a recent Congressional Budget Office (CBO) report, "Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013."

The CBO ran projections based on two scenarios.

One looks at what would happen if Congress does nothing and lets the country go over the fiscal cliff. The other scenario looks at what would happen if Congress dodges the fiscal cliff by extending most, if not all, of the current policies.

Choosing to take a leap off of the fiscal cliff--as has been widely reported-- would slam an already faltering U.S. economy. The CBO report says GDP would shrink by 1.3% in the first half of 2013, pushing the country back into a recession.

On the other hand, extending current policies would push GDP up 5.3% in the first half of 2013.

That may sound great, but a funny thing happens after those first six months.



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How to Fix the U.S. Housing Market

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

If this week's economic reports showed us anything, it's the fact that two years into what's supposed to be an economic recovery, the U.S. housing market remains on life support.

But here's what those reports didn't tell you: If the housing market isn't fixed soon, it's going to drag the rest of the economy down into a hellish bottom that will take years, if not decades, to crawl out of.

The housing market is our single-most important generator of gross domestic product (GDP) and, ultimately, national wealth.

It's time we fixed what's broken and implemented new financing and tax strategies to stabilize prices.

Contrary to the naysayers - and in spite of political pandering and procrastination - we can almost immediately execute a simple two-pronged plan to fix mortgage financing and stabilize U.S. housing prices.

I call it a not-so-modest proposal.

The Worst Since the Great Depression

The facts are frightening: We are in a bad place. The plunge in housing prices we've seen during the current downturn is on par with the horrific freefall the U.S. housing market experienced during the Great Depression.

And without an effective plan to arrest the double-dip in housing, there's no bottom in sight.

Hope Now, an alliance of lenders, investors and non-profits formed at the behest of the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, counts 3.45 million homes being foreclosed from 2007 through 2010. Current estimates of pending and potential foreclosures range from another 4 million to as many as 14 million.

According to RealtyTrac, a real-estate data provider, the country's biggest banks and mortgage lenders are sitting on 872,000 repossessed homes. If you add in the rest of the nation's banks, lenders and mortgage-servicers, the true number of these REO (real-estate owned) homes is closer to 1.9 million.

These shocking statistics illustrate just how large the current overhang of bank-owned properties actually is (at current sales levels, REO properties would take three years to unload). And they help us to understand how the staggering number of yet to-be-foreclosed, repossessed, and sold homes will depress U.S. housing market prices for years to come.



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Special Report: How the Government is Setting Us Up for a Second Subprime Crisis

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

[Editor's Note: Shah Gilani, a retired hedge fund manager and noted expert on the global credit crisis, predicted this developing FHA debacle in a July 2008 Money Morning essay.] Is the government creating another subprime-mortgage bubble? The first time around, the three-headed federal serpent – the Bush administration, the Treasury Department and the U.S. Federal […]

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The Slow Death of General Motors

By , Global Investing Specialist, Money Morning -

By Martin Hutchinson Contributing Editor Money Morning U.S. President Barack Obama's firing of General Motors Corp. (GM) Chief Executive Officer G. Richard Wagoner Jr. may be the beginning of the final act of a long and sad drama – the slow death of GM. The company nameplate may soldier on in some form, but it […]

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