Thursday, October 25, 2012

The Fiscal Cliff

           Ahh the fiscal cliff, the result of last summer's debt-ceiling debacle.  Rather than try to work together and solve our nation’s debt problem, our fearless leaders in Congress kicked the can down the road once again.  Democrats and Republicans in Congress decided our debt crisis could not be solved until after the election.  Unfortunately for the American people, the Tea Party needed to be sure we “solved” this issue before they allowed the US Government to raise the debt ceiling and pay off the bills we already incurred (which has no affect on future spending). 
            The solution Congress came up with was automatic tax hikes and spending cuts that take effect on January 1st, 2013.  To make matters worse, these sequestrations happen across the board without rhyme or reason.  The general consensus among economists is that if the fiscal cliff is not lifted the US will head into another recession.  If you paid attention to the presidential campaigns, watched the debates, or followed the numerous Congressional elections you might not have any idea about the fiscal cliff or how to solve it.  As I stated before, we had 3 presidential debates and not once was there a serious discussion about the fiscal cliff. 
            We are concerned about the anemic growth in the post-financial crisis economy.  Many Republicans point to the slow growth in 2012 as why Obama should not be re-elected.  It is important to understand the detrimental effects the fiscal cliff has on our economy.  This summer, for the first time ever, Standard & Poor’s downgraded the credit rating of the United States.  Other agencies plan on doing the same if we do not solve the fiscal cliff or our debt issues.  With the national debt at $16 trillion, another downgrade could lead to higher interest rates, which would equate to billions of dollars a year in payments.  Unfortunately for us, there is another, more complicated, effect of the fiscal cliff.
            The stock market is up, the housing marketing is rebounding, and consumer confidence is rising.  So where are the jobs?  Uncertainty is a huge obstacle to corporations large and small.  Uncertainty prevents many CEOs from making decisions about the future.  The failure to deal with the fiscal cliff has sown the seeds of uncertainty in CEOs throughout our nation and the world.  I’ve read reports from SPDR funds, Envestnet, and numerous big banks and investment firms urging Congress to do something, anything that will provide them with some direction.  The financial sector just needs some direction from the government so they know where to invest their money. 
            And it is not just the financial industry.  American corporations hold about $1.7 trillion on the books and my guess is that they are dying to spend some of that cash.  Defense contractors, such as, Lockheed Martin, Northtrop Grunman, and General Dynamic are sitting with cash on their books to brace themselves for cuts in defense spending.  The CFO of Siemens, the German industrial giant, has admitted that they are delaying new investments and expenditures until the fiscal cliff is resolved.  The CEO of Legrand, a global manufacturer, has stated that they are holding off on hiring until we are in a more stable environment. 
            It is time for Congress to stop holding back our recovery.  Consumer confidence and spending is bouncing back, and Congress needs to provide businesses with a clear direction so they can begin to benefit from this.  Some may argue that Obama’s policies have slowed down our recovery, but I believe the real culprit is the uncertainty created by our horrible Congress.  Whoever wins the election will need to tackle the fiscal cliff in order for America to truly recover and transition into economy of the future.  So as I finish this post I will leave you with this.  The CEO of JP Morgan, Jamie Dimon, said last week that many on Wall Street would be fine with a rise in taxes as long as it was part of a concrete plan to deal with the fiscal cliff and our debt issues.  

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