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THE MOST LIKELY OUTCOME FOR THE “FISCAL CLIFF”

Business Insider has compiled a nice collection of analyst opinions and ideas regarding the coming fiscal cliff.  Currently, the estimates for the hit to GDP are wide ranging with some analysts predicting as much as a 5% hit to GDP.  But according to Goldman Sachs and Business Insider we’re likely to get an agreement that extends much of the spending.  Business Insider reports:

A short-term resolution, with an expectation of a longer-term resolution.

  • A compromise on these policies before the year-end is likely to be very difficult and officials could instead choose a short-term extension of about 3 to 6 months.
  • This extension could be made with the understanding that the next such extension would have to involve more fundamental fiscal reforms.
  • “In essence, this would extend most of the ‘fiscal cliff’ policies into mid-2013, with the expectation that by that point a broader reform package could be developed and agreed to.”
  • “In theory, the same logic that supports a temporary extension could apply to a full-year extension, but is it likely easier for opponents of certain policies to accept a short-term ‘patch’ than a one year or longer extension.  For example, House Republicans accepted a short-term extension of unemployment benefits in December 2011, even though they had been unwilling to accept a one-year extension without eligibility reductions.”  – Goldman Sachs.
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