Tags: Rosenberg | El-Erian | fiscal | crisis

David Rosenberg, Pimco’s El-Erian: Fiscal Nightmare Looms

By    |   Monday, 14 May 2012 12:03 PM

The U.S. needs to take urgent fiscal action before year-end to avoid a crisis, say economic luminaries such as David Rosenberg of Gluskin Sheff and Mohamed El-Erian of Pimco.

The problem is that without congressional action, the Bush era tax cuts are set to expire Dec. 31, and billions of dollars of spending cuts are slated to take effect next year.

That huge withdrawal of stimulus would be enough to send the fragile U.S. economy into a recession, David Rosenberg, chief economist at Gluskin Sheff, tells The New York Times.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

“Gridlock in Washington at this moment is not contributing to a solution of the country’s problems,” he says.

Federal Reserve Chairman Ben Bernanke has said that without congressional action on spending and taxes, the economy could fall over a “massive fiscal cliff.”

The ramifications aren’t pretty for financial markets, El-Erian says. “It’s only a matter of weeks before the markets begin to really focus on that fiscal cliff,” he told The Times. “It hasn’t really been priced into the market.”

A failure to address the fiscal front would mean big losses for stocks and further gains for bonds, El-Erian says.

As for the economy, “If business anticipates a fiscal shock, investment and hiring may slow later this year,” Lou Crandall of Wrightson ICAP, tells The Wall Street Journal.

At this point, economists surveyed by the paper on average forecast GDP growth of 2.5 percent for this year.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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