• Click Here
  • Click Here
  • FXCM Forex Capital Markets
  • Marketiva Currency Trading
  • Vantage FX
  • Forex.com Gain Capital Brokers
  • dukascopy forex trading
  • CMSForex
  • forex club currency brokers
  • etoro
  • avafx foreign exchange
  • IBFX
  • GFT Forex

Write for OnlineForexTrading

Home » Online Forex Trading Blog » The Financial Cliff

The Financial Cliff

by

The pressure is on in Washington. With President Obama returning to office and signs that some Republicans understand that the party’s ultra-conservative mindset does not resonate with the majority of Americans, it would seem the stage is set for meaningful solutions about the country’s bludgeoning debt. Congress will either follow the Obama lead or the country will fall off the fiscal cliff on December 31. 2012.

Given the erratic record of the Republican House, Americans are edgy about the possibility of a solution to a dilemma that could sink the economy. There is no historical support to think that Congress can coordinate a long-term solution to this pressing problem and place the country’s best interests ahead of their personal own politics.

The House of Representatives will once again attempt to hold Americans hostage, but this time they are negotiating with a President who will not be running for another term and who is committed to represent the middle class, or what is left of it. Analysts have suggested that a temporary debt reduction plan might be implemented but this would be the ultimate kick the can strategy. Americans expect meaningful action.

Three Wings of Fiscal Cliff

The fiscal cliff includes three main components. The temporary payroll tax reduction, the expiration of the Bush Tax cuts and $600 billion in spending cuts are in place to activate on the last day of the year. If negotiations about a remedy are not successful, every American taxpayer will have a heavier burden next year. This will dramatically cut back on consumer spending and severely hurt the Gross Domestic Product (GDP).

The payroll tax reduction has helped many Americans survive the recession and timid recovery. This reduction will most definitely expire.

The $600 billion cuts will cause loss of jobs and send shock waves through the economy. If a debt reduction plan is not in place by December 31, the defense department will suffer the biggest cutbacks.

Bigger Package Needed

As important as avoiding the fiscal cliff is, the country needs a substantial debt reduction plan. The most viable framework for a meaningful debt reduction initiative is the Simpson-Bowles, $4.6 trillion plan. While Simpson-Bowles is an aggressive approach to reduce the deficit, the country needs an even deeper plan.

Americans are exhausted with the dysfunction that has come to symbolize Washington. At a time when the US needs a balanced approach to reduce the debt, the Republican based Grover Norquist Pledge which opposes all legislation with a tax increase, could be the biggest fly in the ointment.

Two other flies in the ointment are Republican Vice Presidential candidate Paul Ryan, whose fiscal approach probably cost Mitt Romney the Presidency and Republican leader of the House, Eric Cantor. Cantor and Ryan have signed the pledge and cannot be relied upon to have any meaningful input in the negotiations. Frankly, the country would be better off if these two thugs were not re-elected.

The only hope to get a substantial deficit reduction plan in place lies with moderate Republicans, a dying breed in Washington. There are signs that the Senate is agreeable to a plan that crosses the aisle. The Congressional Budget Office reports that if a remedy for the fiscal cliff is not resolved, the economy will shrink by 0.5 percent during 2013. More importantly it is very possible that 5 million or more jobs will be lost in 2013, an outcome that apparently is acceptable to Cantor and Ryan. The country will find itself in a deeper recession than the previous recession.

David Cote, CEO of Honeywell explained the intense need for cooperation and action. “If the last debt ceiling discussion was playing with fire, this time they’re playing with nitroglycerin. If they go off the cliff, I think it would spark a recession that’s a lot bigger than economists think. Some think it would just be a small fire. I think it could turn into a conflagration.”

On Wednesday, President Obama met with a number of CEOs. Many of these CEOs are unsympathetic to the gridlock in Congress. Several major corporations have said they are hoarding cash and unwilling to invest in the US in the current political and economic climate. That possibility is another consequence of the fiscal cliff. Some of the country’s biggest corporations will invest in enterprises in other countries.

When the Bush Tax Cuts were introduced as a temporary tax reduction plan. They have been renewed every year since. The President ran on a platform of increasing the tax rate for workers who earn $250,000 or more. Ryan and Cantor are vehemently opposed to this approach despite the fact that many of the country’s wealthiest individuals have said they were amenable to the proposal.

Republicans favor changing the deductions, such as the interest paid on mortgages and other changes to add revenue. At a time when the country desperately needs positive news on the housing crisis, eliminating the deduction for interest would cripple the housing market further.

Just as Republicans did during the election, they continue to step on themselves. MSNBC reported that 60 percent of persons interviewed in exit polls favored tax increases for the nation’s wealthy. It is time for Congress to put their differences aside and negotiate in good faith for a long-term solution.

Be Sociable, Share!

Tags: , , , , , ,

About the Author -

Hiland DoolittleHiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses. Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.

Leave a Reply