Earlier this week we poked fun at the Fiscal Cliff talks with our cartoon post, but after reviewing the latest popularity of the subject matter, we thought it worth a more serious discussion, even though we feel slightly like we are beating a dead horse (apologies horse lovers…only a cliche…no harm meant…haha)
Here is a google trend graph showing the popularity of the search term “fiscal cliff” that set us into motion:
We first met the Fiscal Cliff in April 2012 during our Private Client Robert McTeer talk, as he very accurately proclaimed a total failure to do anything would be a 7% negative economic drag on our economy. We are currently running at about 2%, so that would put us readily into recession territory.
What is the Fiscal Cliff?
The cliff or Fiscal Cliff, named by FOMC Chairman Ben Bernanke is the collective increase of taxes and spending cuts all at the same time, due to occur 1-1-2013. If nothing is done, tax rates will increase dramatically next year slowing our economy.
How did this come about?
Continued bureaucratic debates and compromise set this date in stone after debt ceiling, tax increase, and political compromises.
Are we concerned ?
Sure, we were concerned about Y2K too, but it all worked out. Are we running for the hills, NO WAY!
Our probabilities for outcomes:
If you have been following us long, you know we like to assign probabilities for outcomes, so here go with our blended probabilities for END OF THE YEAR actions (JK and DC…yes they are different in certain areas):
- 10% completely resolved and everyone is happy–YEAAA–Market Positive
- 20% Nothing gets done and we start the new year with higher taxes–BOOO–Market negative
- 70% Extension of most everything with maybe a couple of token compromises (Can kicked down the road)–YAWN–Market neutral
What we find interesting is the US political checks and balances, at their core, were established to guide, discipline, and enhance our economy. We think it works and we like our chances/odds always! However, at this moment, the very checks and balances that were meant as guide posts are a wall that COULD hamper economic growth dramatically, but we doubt it.
Have a great day!
PS Post holiday party sickness is running rampant, we have two stomach bugs, two pink eyes and two running fever…that I know of…yikes!
PSS Sunday marks the second try at a sub 4 hour trot…mother nature looks to flex her muscles once again with higher temperatures, making it tough for a rhino!
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Dallas, TX 75225