Tags: Abelson | fiscal | cliff | recession

Barron's Abelson: Disregard for 'Fiscal Cliff' Could Lead to Recession

Sunday, 03 Jun 2012 12:18 PM

The country is headed for a nasty recession if policymakers don't address tax breaks and spending cuts before the end of 2012, writes Barron's financial columnist Alan Abelson.

By year end, the Bush tax cuts, payroll tax holidays and extended unemployment benefits are set to expire.

At the same time, automatic spending cuts are scheduled to kick in, and the combination of the two — dubbed by Wall Street as a "fiscal cliff" — could siphon at least $500 billion out of the economy next year, which could equate to 4 percent of gross domestic product, according to some estimates.

Editor's Note: The Final Turning Predicted for America. See Proof.

Considering recovery is waning, as evidenced by the dreary May jobs report that showed the economy created a net 69,000 jobs that month, failure to address the fiscal cliff could mean disaster next year.

"Friday's dismal labor report was unhinging enough. But it could well be that the worst is yet to come. For beclouding the outlook for equities are not a few stones or even a pile of large boulders, but a huge and ominous cliff that already is causing a certain unease among investors, a perturbation that seems destined to grow inexorably in magnitude and intensity as this screwy year wends its wacky way through its fraught remaining months," Abelson writes.

"Unless the lawmakers and the administration decide to act like grown-ups (even with their fingers crossed) and amend the law — most unlikely, to put it mildly, in this politically charged climate — the draconian changes could push our slowpoke recovery plumb off the cliff."

Even international organizations are raising warning flags over the approaching fiscal cliff.

The Paris-based Organization for Economic Co-operation and Development (OECD), a 34-member international economic organization, has said failure to adjust the timing of spending and tax cuts could send the tepid U.S. recovery on a U-turn.

"The programmed expiration of tax cuts and emergency unemployment benefits, together with automatic federal spending cuts, would result in a sharp fiscal retrenchment in 2013 that might derail the recovery," the OECD warns in its latest report, according to Reuters.

Back home, the nonpartisan Congressional Budget Office says the economy will fall into recession if the White House and Congress don't act now.

Specifically, the CBO warns that gross domestic product will contract 1.3 percent during the first six months of next year.

"Such a contraction in output in the first half of 2013 would probably be judged to be a recession," the CBO reports, according to the Associated Press.

Editor's Note: The Final Turning Predicted for America. See Proof.

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2012-18-03
Sunday, 03 Jun 2012 12:18 PM
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