THE International Monetary Fund has warned US leaders that hitting the looming "fiscal cliff" would not only crush the American economy but spin havoc through the rest of the world.
Fiscal cliff is 'ticking time bomb' for stocks
In fact, nearly 60% of the investment strategists and money managers surveyed by CNNMoney said the outcome of congressional elections will play a bigger role, since lawmakers in the House and Senate will dictate how to resolve the fiscal cliff, considered to be the market's biggest headwind.
"Congress is key to the fiscal cliff issue, which is nearing the front burner of the market, so we place more importance on them," said Kim Forrest, senior equity analyst at Fort Pitt Capital.
According to the Congressional Budget Office and most economists, Washington's failure to address the fiscal cliff -- the simultaneous onset of tax increases and spending cuts that will be triggered on Jan. 1 -- would push the country back into recession and drive unemployment up even higher.
"Fiscal cliff" fears may impede faster job growth
"Businesses are starting to focus more on the fiscal cliff," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania. "It's really hard to identify the spark that's going to get us much stronger job growth until we get more clarity on the U.S. fiscal situation."
A likely scenario is that Congress and the president agree to punt the issue into 2013. If this occurs, the tax cuts will not expire, tax increases won’t take effect, and the spending cuts will be delayed until after the presidential inauguration and new Congress arrives in 2013.
Scenario 2: modest compromise
Congress and the White House reach compromises on some tax and spending provisions, with the election having a significant impact on what those compromises might be.
Scenario 3: over the cliff
A less-likely scenario, I think, is that Congress and the White House fail to reach any compromise whatsoever and are unable even to agree on how to delay the looming measures. The economy goes over the cliff.
Scenario 4: grand bargain
In my view, the chance of a grand bargain taking place after the election and before the end of the year is a long shot. In this scenario, Congress and the White House would reach a deal addressing tax, spending, and fiscal issues for the medium to long term.
In addition to the fiscal cliff, the U.S. will again approach the debt ceiling early next year. While the sequence of events puts the debate over the fiscal cliff before the debt deadline, the two issues are likely to be intertwined.
The outcome of the 2012 elections matters, but the resolution of these issues is tough regardless of whether Democrats or Republicans are in control. That’s because they reflect longstanding philosophical differences between the parties about the proper role and size of the government, and how to grow the economy.
So which scenario will it most likely be?
Why isn't a concrete solution mentioned in the election campaigns, why wait till after? it's pretty important no?
Edited by Render, 09 October 2012 - 08:03 AM.