Tags: Rattner | Morici | meltdown | cliff

Steve Rattner: Market Meltdown to Follow ‘Fiscal Cliff’

By    |   Tuesday, 07 Aug 2012 12:16 PM

While many fear the nation's economy is at risk if the so-called fiscal cliff is not avoided, Steve Rattner, former Treasury official under President Barack Obama and current chairman of Willet Advisers, tells Yahoo that if the United States goes over the cliff, a market meltdown will follow.

The fiscal cliff involves crossing a line that will trigger $3 trillion in tax increases and $1 trillion in spending cuts over 10 years.

Though spread over a decade, the effects of the fiscal cliff begin in 2013.

Without a compromise by January, $400 billion in mandatory spending cuts and $100 billion in tax increases will be effective immediately, according to Peter Morici, professor at the Smith School of Business at the University of Maryland and former chief economist at the U.S. International Trade Commission. With the U.S. economy only growing at $300 billion per year, Morici tells Fox News that such a “shock would thrust it into a prolonged contraction.”

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

Peter Morici, professor at the Smith School of Business at the University of Maryland and former chief economist at the U.S. International Trade Commission.

Though theories vary as to how the havoc will unfold or how severe it will be, most agree that there will be consequences. Some believe that the uncertainty is already affecting the economy and restraining growth.

Businesses are already curtailing investments in machinery and information technology to hedge against a contracting economy in 2013, Morici notes. In addition, consumers are spending less, he says.

One might assume that lawmakers would be on the job diligently working to avoid something seen as so catastrophic but lawmakers are actually the problem, Rattner says. A solution requires meaningful action from Congress and given the environment in Washington many find it difficult to be optimistic.

Rattner compares the Congress under Obama to the infamous “do-nothing Congress” of the Truman years, pointing out that the current crew on Capitol Hill have passed about two-thirds fewer laws.

“This Congress has passed the fewest laws in modern history,” Rattner tells Yahoo.

And the politically polarity is creating a very dangerous situation.

Ratter likened the issue to a car driving 80 miles per hour in a 40 mile per hour zone. “If you slam on breaks, you go through the windshield. That's effectively what would happen to the economy not just because of all of the changes that would occur in the federal budget but because markets would be destabilized,” Rattner warns.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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2012-16-07
Tuesday, 07 Aug 2012 12:16 PM
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