The Fiscal Cliff: Why Does It Matter? | Richard Tan Success Resources

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What's the worst that can happen when U.S. goes of the "fiscal cliff"?

What's the worst that can happen when U.S. goes of the "fiscal cliff"?

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  • 1. THE FISCAL CLIFF: WHY DOES IT MATTER What’s The Worst That Can Happen When The U.S. Goes Of The Fiscal Cliff?
  • 2. The initial upbeat reaction in Asia to Obama’s election victory was swiftly replaced by market anxiety as the focus turns to the “fiscal cliff,” a so- called set of measures scheduled to take place to rein in the US budget at the end of the year.
  • 3. The combination of deep spending cuts and huge tax hikes was the result of a protracted but possibly reckless compromise agreed upon last year between Democrats and Republicans in order to raise the country’s debt ceiling.
  • 4. Investors now fear a post-election and still deeply divided Congress will not be able to reach an agreement to avoid this fiscal cliff by the end of the year.
  • 5. While the package would reduce the country’s huge fiscal deficit, it would also suck billions of dollars out of the world’s biggest economy.
  • 6. The United States’ slow recovery from the financial crisis could be reversed and the economy tip back into recession, which would in turn deal a major blow to the global economy.
  • 7. What’s the worst that can happen? We can get a clue from the last time a similar scenario happened – the Great Depression. If it happened today, it would look like this: • Banks would collapse under the debt correction • People’s savings would be wiped out • ATM machines would not work
  • 8. • People would lose their jobs • The government would have no money to support them • There would be no subsidies for medical treatment • There would be super high inflation and no one would be able to afford to buy food • It could lead to the next World War just like the Great Depression in the 30′s led to World War II.
  • 9. Even if the worst-case-scenario is averted, none of the possible solutions faced by U.S. lawmakers are particularly attractive: 1. They can do nothing and let the current policy go into effect. The plus side: the deficit, as a percentage of GDP, would be cut in half.
  • 10. 2. They can cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The flip side of this, of course, is that the U.S. debt will continue to grow. 3. They could take a middle course, opting for an approach that would address the budget issues to a limited extent, but that would have a more modest impact on growth.
  • 11. All it sounds like is postponing the inevitable – the eventual collapse of the global economy. The U.S. government has been talking about this “catastrophe” like something that is “suddenly upon us.”
  • 12. But economists and investment experts have been predicting it and warning about it for the last decade.
  • 13. They’re even saying the global economy has already gone off the cliff and we’re all in financial free fall. The real question is, how are you going to land?
  • 14. Will you find yourself in the best “landing position” to take advantage of what may perhaps be the greatest wealth transfer in history, or will you be caught flatfooted and financially paralyzed from the fall?
  • 15. Success Resources Pte Ltd Main Office: 10/11 Pahang Street, Singapore 198611 Toll Free: 1800 7822 377 Direct: +65 6299 4677 Fax: +65 6295 2441 Email: info.sg@srpl.net Website: http://www.srpl.net