Fiscal Cliff – Fiasco or Fantasy?

Unless you’ve been hiding out in a cave for a few months, you’ve probably heard the words “fiscal cliff” bandied about a bunch.

And confusion about what the term really means is rampant.

The basic meaning refers to a series of tax cuts that will expire and automatic spending cuts that will take place on January 1, 2013. That is, if Democrats and Republicans can’t agree on a new budget deal by the end of this year.

But here’s the funny thing (well, maybe not THAT funny)… in their infinite wisdom, the two parties actually created the end of year deadline to effectively motivate them to get a deal.

Boy, THAT’s really working out, isn’t it?

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You can tell Obama is really serious about it. Maybe he’ll be able to negotiate from his beachfront rental house on his Christmas-week Hawaii vacation. (Yes, ANOTHER one, if you can believe it, and at the cost of around $4 million).

And the mainstream media is not helping at all. They’ve been merely speculating about what might happen if an agreement isn’t reached.

So what is this fiscal cliff all about? Well, basically, the U.S. economy could take a swan dive back into recession if a bunch of stuff happens at the end of this year.

The Bush tax cuts are due to expire and a series of big federal spending cuts are due to take effect as well.

The “Elephant in the Room” is the U.S. budget deficit, which has soared to $172 billion, and the overall national debt totaling an astonishing $16 trillion.

Both parties agree they need to get the deficit and debt under control. America just can’t keep spending money it doesn’t have.

But here’s the deal…

They can’t agree on how to do it… yet. The Republicans don’t want to increase taxes, claiming raising taxes on anyone in a flat line economy is paramount to insanity. The Democrats are reluctant to make deep spending cuts, and taxing and spending seem to be in their DNA anyway.

So what will happen if no agreement is made, and the U.S. goes “over the cliff”?

It’s hard to say exactly.

According to the Congressional Budget Office, the cliff dive would probably lead to a recession in early 2013, with things starting to pick up late in the year.

It’s possible the tax increases and spending cuts could seriously damage city and state budgets.

And companies simply cannot plan for the future when America’s fiscal policy is up in the air. So they are doing no new hiring as a result.

But some commentators say the fiscal cliff may not be such a bad thing. Former legislator Ron Each us states that “the long-term benefits of going over the cliff outweigh the short-term consequences.”

And former Speaker of the House Newt Gingrich claims the fiscal cliff is just a “myth” to begin with.

Bottom line, no one seems to know exactly what the future holds. But my gut feeling is that… no matter what happens… A deeper recession seems to be imminent either way butt… we’ll muddle our way through somehow, and get on down the road…

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Sources [1] Terence Jeffrey CNS news