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