The document discusses the potential economic effects of going over the "fiscal cliff" at the end of 2012, which would result in large tax increases and spending cuts. [1] Going over the cliff could plunge the economy into a recession in 2013, reducing GDP growth by 0.5% and increasing unemployment to 9.1%. [2] While it would significantly reduce the budget deficit, the spending cuts and tax increases would also cut consumer spending, cause businesses to fail, and reduce mass employment. [3]

1. BFI Club, Fall 2012

2. Video
 http://www.youtube.com/watch?v=ZS9w
vyVEUK0

3. What is the Fiscal Cliff?
 December 31, 2012
 Expiration of almost every tax cut enacted since
2001 (Bush era tax cuts)
 Reduction in government spending
 What’s the effect?
 Bankruptcy
 Isn’t that strange? – why would the
generation of MORE tax revenue and
spending CUTS be a bad thing? Why
wouldn’t America’s huge deficit decrease?

4. Answer
 The deficit will decrease for a short time,
but... If you INCREASE taxes and
DECREASE spending, you DECREASE
GDP. What does that mean?

5. Let’s start with increasing
taxes…
 GDP is Gross Domestic Product– “the market
value of all officially recognized final goods
and services produced within a country in a
given period of time” [WFE]
 Really, it’s just the standard of living
 If you increase GDP, people will spend less,
right?
 What happens when there is less spending?
 Business begin to fail (not enough people buying
their stuff due to low spending confidence)
 Mass unemployment

6. Now let’s discuss decreasing
federal spending…
 This one’s pretty straightforward– saying
“I want to decrease government
spending” is the same as saying “let’s
slash the government budget”
 If you slash the budget, there will be
significant spending reductions on
defense and government benefits (eg.
let’s be mean to the old people and
increase the Medicare age)

7. How did we get here?
 August 2011- Congress passed the
Budget Control Act. What is that?
 This temporarily raised the national debt limit
by $2 trillion
 Congress has to find a better solution (we
can’t keep accumulating debt…)
 Also…
○ The act lowered funding for government
organizations by over $1 trillion

8. What if we slip?
 A recession would begin in 2013
 Economic growth would be reduced by
0.5%
 Unemployment would increase
(7.9%9.1%)
 But…
 This is bitter MEDICINE. The budget deficit
would fall to $200 billion by 2022 (from 1
trillion today).