Friday, December 14, 2012

Tired of hearing about it!

Are you tired of hearing about it yet?  We first blogged about the fiscal cliff 233 days ago (reprinted verbatim below) and unfortunately, continued political dysfunction, which we correctly cited as a key risk, has prevented any resolution.  We continue to remain hopeful that a last minute compromise will occur but that hope is waning as each day passes.   

Originally posted by Payne Wealth Partners on April 25, 2012

It is looming!!!  In his recent congressional testimony, Fed Chairman Bernanke stated, “Under current law, on January 1, 2013, there’s going to be a massive fiscal cliff of large spending cuts and tax increases.”  This is the date when the Bush-era tax cuts, the temporary payroll tax cut and extended unemployment benefits are all due to expire.  To make matters worse - since the Congressional Super-Committee failed to reach consensus last year on reducing government spending we will also see $1.2 trillion of automatic spending cuts begin on the same date.  Combining tax increases with spending cuts could push our economy back into recession.  It is anticipated that economic output would be reduced by 3.5% next year if all these things come to pass. 

We remain hopeful that a more thoughtful approach is taken regarding spending and tax cuts by Congress and the President prior to meeting the fiscal cliff Chairman Bernanke speaks of.  However, the risk of policy errors and continued political dysfunction, particularly in an election year, remains very high.  We will continue to monitor these issues closely as the year progresses.