Obama, Reid. and Boehner are trying to work out a deal to avoid automatic spending cuts, heavily in the Defense budget, trhat go into effect automatically on January 1.
Obama wans to tax the rich. Boehner has said “no deal.”
Boehner is on the hot seat. Will he stick to his guns? Will he let the cuts begin? He can probably block the tax increases. The House Republicans will go along with him.
If he buckles, he begins the 4-year period with a capitulation. He becomes “Mr. Sell Out.” He did that with TARP. He has said he will not do it again. But his initial comments sound conciliatory.
Gridlock should begin now.
One Canadian financial commentator has laid out the economic issues. Tax increases (automatic) could cause a recession. This could spread beyond U.S. borders.
Another four years under U.S. President Barak Obama is seen as generally positive for the Canadian economy. But fears about the looming “fiscal cliff” quickly overtook the initial euphoria.
North American stock markets traded sharply lower on continuing uncertainty over how a deeply divided Washington will deal with nearly $600 billion (U.S.) in tax increases and spending cuts that come into effect in 2013.
If unresolved, the so-called “fiscal cliff” – a phrase coined by U.S. Federal Reserve chairman Ben Bernanke – threatens to plunge the U.S. back into recession, dragging Canada and other global economies down with it. . . .
In New York, the Dow Jones Industrial Average and S&P 500 composite index both closed down 2.4 per cent. Oil prices fell 5 per cent on declining demand. . . .
In Ottawa, federal Finance Minister Jim Flaherty urged U.S. politicians to move swiftly to reach an agreement on the fiscal cliff before the package of tax and spending programs comes into effect Jan. 1.
“Of course we’re worried because it would mean, were the entire fiscal cliff risk to come to reality … (it) would put the U.S. economy into a recession quite quickly and the Canadian economy would follow shortly thereafter, and would have a significant effect on the global economy,” Flaherty told reporters. . . .
However, it remains to be seen how much Obama can accomplish given a divided Congress (Democrats maintained control of the Senate while the Republicans kept the House), a scenario that led to political gridlock in Washington under the previous administration.
The U.S. is Canada’s largest trading partner and, as such, everything from its interest rate policies to consumer confidence levels can affect Canada’s economic performance.
“The risks that the U.S. economy will fall off the looming fiscal cliff and fall back into recession is one of the top risks facing Canada’s economy as we head into 2013,” Derek Burleton, deputy chief economist, TD Economics, wrote in a note to clients. . . .
“The U.S. recovery is still quite tenuous,” Paul Taylor, chief investment officer for BMO Asset Management Inc. in Toronto, said on a conference call with reporters. . . .
Some economists are betting a more conciliatory Obama and a Republican Congress less focused on defeating him at the polls will be more able to reach an agreement on how to avoid that catastrophe.
But nothing is certain. . . .
An impasse could mean a package of Bush-era tax cuts expires Dec. 31 for everyone except households earnings above $250,000, curbing most consumers’ spending ability.
As well, several hundred billion dollars in additional tax increases and spending cuts are scheduled to take effect in January unless the White House and Congress reach an alternative deficit-reduction agreement.
Combined, the measures would cut U.S. economic growth, currently at 2 per cent, by an estimated 3 to 4 percentage points next year, economists estimate. . . .
The year after an election has typically been the worst in the four-year political cycle for equities, BMO Capital Markets economist Robert Kavcic noted. And with President Obama now facing a significant fiscal challenge, the pattern could hold this year, he speculated.