U.S. ‘Fiscal Cliff’ Looms: Will Lawmakers Heed Bernanke’s Warnings?
By Morgan Korn | Daily Ticker – 6 hours ago
In late February Fed Chairman Ben Bernanke started warning lawmakers
about the looming "massive fiscal cliff" that would bring the U.S.
economy to its knees if Congress cannot agree on long-term fiscal
decisions. Bernanke explained that the confluence of events happening
Jan. 1, 2013 - the expiration of the Bush-era tax cuts and extended
unemployment benefits, the $1.2 trillion automatic spending reductions
and the end of the payroll tax holiday — will likely lead to a recession
in the U.S.
Neither political party wants this worst-case scenario to come to fruition but lawmakers are likely to "kick the can down the road" instead of addressing these pressing policy issues before the November elections says Greg Valliere, chief political strategist at Potomac Research Group. Bernanke reiterated his concerns to a select group of lawmakers last week, escalating his rhetoric about the necessity of resolving these budget concerns sooner rather than later.
"I think [Bernanke] is worried, and people at the Fed are worried because this is such a dysfunctional group," says Valliere in the accompanying video. "And there's talk now of a government shutdown on Oct. 1 when the new fiscal year starts."
Bernanke's admonition was not lost on the senators who attended the vis-à-vis encounter. Bernanke probably told lawmakers "you guys got to get your act together because if we do nothing in December…the impact on GDP will be so adverse it will probably lead to a recession," Valliere says.
The economic recovery has proven to be tepid but many in Washington remain convinced the economy will be strong enough to dodge a recession. Recent data suggest otherwise.
The government reported economic growth in the first quarter slowed to 2.2 percent from 3 percent during the last three months of 2011. Employers hired fewer workers in April, adding a mere 115,000 jobs compared to 154,000 in March. Most economists agree that the economy needs to create at least new 200,000 jobs every month for several years to get back to pre-2008 levels. The pro-growth programs that expire at the end of the year could be the setback that triggers another recession. Bernanke verbalized these fears at an April 25 press conference.
"If no action were to be taken by the fiscal authorities, the size of the fiscal cliff is" so large that there's "absolutely no chance that the Federal Reserve would have any ability whatsoever to offset that effect on the economy," Bernanke said.
Economists agree that tax hikes and spending cuts will drag down economic growth in 2013 yet the estimates vary. Moody's Analytics chief economist Mark Zandi predicts the fiscal drag next year could be to closer to 1.5 of a percentage point of GDP. The Congressional Budget Office calculated GDP could drop by nearly 3.6 percentage points in the 2013 fiscal year while Morgan Stanley economist David Greenlaw says fiscal tightening could translate into a 5 percent drag on GDP during the 2013 calendar year.
Valliere doubts Congress will get much accomplished in the 20 lame duck legislative sessions after the election. The "fiscal cliff" will likely be averted in the short term if Congress votes to renew the expiring programs for at least the first quarter next year, as Valliere expects to happen. Until then uncertainty will continue to rattle U.S. markets and put investors and the nation on a very slippery slope. end quote from:
http://finance.yahoo.com/blogs/daily-ticker/u-fiscal-cliff-looms-lawmakers-heed-bernanke-warnings-123727473.html
It may be that the present state of Congress and of "Politics without compromise" will push us over the fiscal cliff. So, imagine the two parties fighting while they go over this fiscal cliff together. There might not be a victor only two suiciding parties fighting going over the fiscal cliff. Though it might be interesting to watch this self destruction of both political parties, living through it as Americans might be another matter entirely.
Since the Federal Reserve is out of options and the Congress is locked in relatively petty squabbles another Great Depression might be on the horizon starting next January if nothing changes.
Also, if you go to the above website there is a video of Valliere speaking about all this that accompanies this article. Also, another factor in all this is The gutting of the 1933 Banking Act between 1980 and 1999 to the present.
The Banking Act of 1933
Neither political party wants this worst-case scenario to come to fruition but lawmakers are likely to "kick the can down the road" instead of addressing these pressing policy issues before the November elections says Greg Valliere, chief political strategist at Potomac Research Group. Bernanke reiterated his concerns to a select group of lawmakers last week, escalating his rhetoric about the necessity of resolving these budget concerns sooner rather than later.
"I think [Bernanke] is worried, and people at the Fed are worried because this is such a dysfunctional group," says Valliere in the accompanying video. "And there's talk now of a government shutdown on Oct. 1 when the new fiscal year starts."
Bernanke's admonition was not lost on the senators who attended the vis-à-vis encounter. Bernanke probably told lawmakers "you guys got to get your act together because if we do nothing in December…the impact on GDP will be so adverse it will probably lead to a recession," Valliere says.
The economic recovery has proven to be tepid but many in Washington remain convinced the economy will be strong enough to dodge a recession. Recent data suggest otherwise.
The government reported economic growth in the first quarter slowed to 2.2 percent from 3 percent during the last three months of 2011. Employers hired fewer workers in April, adding a mere 115,000 jobs compared to 154,000 in March. Most economists agree that the economy needs to create at least new 200,000 jobs every month for several years to get back to pre-2008 levels. The pro-growth programs that expire at the end of the year could be the setback that triggers another recession. Bernanke verbalized these fears at an April 25 press conference.
"If no action were to be taken by the fiscal authorities, the size of the fiscal cliff is" so large that there's "absolutely no chance that the Federal Reserve would have any ability whatsoever to offset that effect on the economy," Bernanke said.
Economists agree that tax hikes and spending cuts will drag down economic growth in 2013 yet the estimates vary. Moody's Analytics chief economist Mark Zandi predicts the fiscal drag next year could be to closer to 1.5 of a percentage point of GDP. The Congressional Budget Office calculated GDP could drop by nearly 3.6 percentage points in the 2013 fiscal year while Morgan Stanley economist David Greenlaw says fiscal tightening could translate into a 5 percent drag on GDP during the 2013 calendar year.
Valliere doubts Congress will get much accomplished in the 20 lame duck legislative sessions after the election. The "fiscal cliff" will likely be averted in the short term if Congress votes to renew the expiring programs for at least the first quarter next year, as Valliere expects to happen. Until then uncertainty will continue to rattle U.S. markets and put investors and the nation on a very slippery slope. end quote from:
http://finance.yahoo.com/blogs/daily-ticker/u-fiscal-cliff-looms-lawmakers-heed-bernanke-warnings-123727473.html
It may be that the present state of Congress and of "Politics without compromise" will push us over the fiscal cliff. So, imagine the two parties fighting while they go over this fiscal cliff together. There might not be a victor only two suiciding parties fighting going over the fiscal cliff. Though it might be interesting to watch this self destruction of both political parties, living through it as Americans might be another matter entirely.
Since the Federal Reserve is out of options and the Congress is locked in relatively petty squabbles another Great Depression might be on the horizon starting next January if nothing changes.
Also, if you go to the above website there is a video of Valliere speaking about all this that accompanies this article. Also, another factor in all this is The gutting of the 1933 Banking Act between 1980 and 1999 to the present.
The Banking Act of 1933
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