If Washington politicians can’t reach a last-minute deal, 2013 will begin with a big batch of tax hikes and cuts in government spending that could lop four percent off GDP and trigger a recession.
- Postpone spending. The odds still favor a benign outcome to the fiscal-cliff drama, but it’s increasingly possible that political brinksmanship really will cause another recession. Moody’s Analytics puts the odds of a recession at 37 percent, the highest level in about 15 months. That risk has spiked on account of the fiscal cliff. Reining in spending will hurt the economy, of course, but given Washington’s dithering, it’s only prudent.
- Call your representatives in Congress. You, dear citizen, have an important role to play in the fiscal-cliff drama, by vocally expressing your outrage as Congress threatens to tank the economy. When enough of you demand action, Congress will act.
Fears of sharp tax increases and government spending cuts set to take effect next week sent consumer confidence tumbling in December to its lowest level since August. The Conference Board said Thursday that its consumer confidence index fell for the second straight month in December to 65.1, down from 71.5 in November. Republicans and Democrats are still at loggerheads over the terms of a deal on how to avoid $680 billion in automatic increases in taxes and spending cuts.
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