Will the U.S. government act responsibly to avoid the ”fiscal cliff” budget crisis on January 1st?
*Reuters, by Andy Bruce, November 12, 2012
‘Any partisan squabbling over the United States’ looming budget crisis will harm its economy, according to a strong majority of economists polled by Reuters after Tuesday’s presidential election.
While most said political leaders will avert by January 1 a ‘fiscal cliff’ of automatic tax hikes and spending cuts worth $600 billion, respondents warned that confidence in the economy will be hit hard if talks descend into a major fight.
Democratic President Barack Obama’s first item of business after winning the White House for a second term is to negotiate with a Republican majority in the House of Representatives to avoid a budget crunch before the start of next year.
Both Obama and senior Republicans — defeated presidential candidate Mitt Romney and House of Representatives Speaker John Boehner — have stated their desire to cooperate.
Forty-two out of 50 economists described as ‘high’ the risk that fraught budget talks will harm investor and consumer confidence, while the remaining eight were ‘neutral.’ But some of the damage has already been done.
‘The uncertainty around the cliff has and will continue to weigh on activity,’ said Michael Hanson, senior U.S. economist at Bank of America-Merrill Lynch.
‘You’ve seen signs of that in capital goods spending — orders and shipments — and it’s very possible that we’ll see hiring hit towards the end of the year, or early next year, depending on how the negotiations turn out.’
There are already signs in corporate America that the budget uncertainty has sapped confidence in the economy, which is growing at a weak pace and is vulnerable to shocks.
AT&T, the second-biggest U.S. mobile service provider, said business customers are nervous about spending. Chief Executive Randall Stephenson said on Wednesday the uncertainty around the fiscal cliff is creating ‘a real throttle on this country’s growth now.’
Still, 46 out of 55 economists said politicians would strike a deal, but there was division on whether that would be stop-gap or permanent. Forecasts ranged from a three-month fix to a lasting solution.”
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