The impending fiscal cliff, a combination of tax hikes and spending cuts scheduled for next year, will have a drastic impact on the U.S. economy and is already squashing the recovery, according to
a study from the National Association of Manufacturers.
Unless Congress acts before January, the fiscal cliff will eliminate almost 6 million jobs and send the unemployment rate to near 12 percent, the study warns. About $100 billion in spending cuts and about $400 billion in tax increases will go into effect in January unless Congress acts.
Anticipating the fall-out, companies are laying off workers, not filling jobs and delaying investments. Fear of the fiscal cliff has wiped out nearly 1 million jobs this year alone, the NAM study, called “Fiscal Shock: America’s Economic Crisis,” claims.
Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.
The Congressional Budget Office has predicted that unemployment would spike to 9 percent but the economy would recover in the second half of 2013.
But the NAM study claims the impact will be much worse.
“The worst could be ahead,” the report warned. “If the fiscal contraction happens, the economy will almost certainly experience a recession in 2013 and significantly slower growth through 2014," the report said.
“From 2012 to 2015, the economy will lose 12.8 percent of the average annual real GDP it could have attained with moderate growth, sapping critical resources from all economic sectors. Job losses will be dramatic. By 2014, the fiscal contraction will result in almost 6 million jobs lost, and the unemployment rate could reach more than 11 percent. Households will take a big hit. Real personal disposable income will drop almost 10 percent by 2015," it said.
The report said the economy could lose 3.6 million jobs by 2013 and in 2014, “the peak year of loss, employment is 5.7 million jobs lower relative to the baseline.” The unemployment level could be at nearly 12 percent in 2014 and remain high through 2015.
“Even if the Administration and Congress resolve the uncertainty before the end of the year, economic growth already has sustained significant damage,” the report concluded. “The short-term fiscal contraction set for 2013 will trigger long-run durable losses to GDP, productivity, and real income."
“Even under the best-case scenario, it will take almost a decade for economic activity and employment to reach the levels they would have reached without a fiscal shock. While the spending cuts and tax increases reduce the federal deficit and debt, the substantial negative consequences of not addressing the end-of-year fiscal crisis before it happens will be devastating.”
Many experts claim the U.S. economy already has suffered severe harm.
“We’ve probably already lost 0.5 percent of [gross domestic product] growth in 2012, just from the fiscal cliff hovering over our heads,” Jeff Werling, a University of Maryland researcher who prepared the report, told The Washington Post.
“People are taking precautionary measures. Even if you think there’s not much of a chance of this happening, businesses and consumers are still worried.”
JPMorgan Chase CEO Jamie Dimon also says the coming fiscal cliff is already impacting decisions of CEOs.
"I've spoken to CEOs who say, you know, absolutely, we are making decisions to protect ourselves from the fiscal cliff and those are like investment decisions and hiring decisions," Dimon told CNBC-TV18 in India.
Its impact would be much worse than most economists predict, he says.
Dimon is urging political leaders to reach a compromise to avoid that disaster.
"A fiscal cliff and another recession would be terrible for America,” Dimon told CNBC. “We should do everything we can to avert something like that."
Editor's Note: 'It’s Curtains for the US' — Hear Unapologetic Warning from Prophetic Economist.
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