While most New Zealanders summer worries are mainly focused on the weather and what to eat or drink next, deep in the
winter of Washington politicians and officials are contemplating the ``Fiscal Cliff’’.
In simplistic terms the Fiscal Cliff is the phrase coined to describe what will happen in the United States in January
when the expiry date comes up a for a vast range of legislation covering tax cuts and spending programmes.
The legislation involved covers more than a decade where the various branches of the US Government could not agree on a
Budget so they agreed on time limited legislation to give themselves a chance to compromise.
Of course after years of half-hearted attempts, no compromise has been reached.
The Founding Fathers carefully designed the US government structure and constitution to make it very difficult for one
branch to dominate the other, what they probably did not foresee was the partisan brinkmanship politics that now
dominates the US political scene.
The US House of Representatives is due to meet on Sunday to avert the cliff, while President Obama has cut short his
holiday in Hawaii to meet with Senators to see if some deal can be reached.
The term ``cliff’’ is a bit dramatic for what will happen if they fail to agree, it is more a slope - with taxes being
ratcheted up and spending programmes cut over a number of years.
In some ways for many economists going over the Fiscal Cliff would not be such a bad thing as it will sort out the US’s
incredible deficit problem. Though most predict the medicine will be so harsh (with an almost estimated 88 percent of
Americans facing tax hikes and many hit by the end of Government assistance packages) it will knock the US into a very
deep recession – And where the US tends to go, so then so does much of the world.
The Wall Street Journal constructed an interactive decision making tree which shows the problems US lawmakers are
grappling with:
Elsewhere on Scoop there is a wide range of material on the Fiscal Cliff and in particular the effects so far on the New
Zealand dollar and markets:
An op/ed piece by Walter Brasch - Fiscal Chicken
Dec. 28 (BusinessDesk) – The New Zealand dollar fell as US stocks tumbled on concern America is running out of time to
avert US$600 billion of tax hikes and spending cuts starting Jan. 1 that threaten to stall the world’s biggest economy
Dec. 24 (BusinessDesk) - The New Zealand dollar edged lower in abbreviated local trading as stalled negotiations to
stave off US$600 billion in tax hikes and Federal spending cuts erode investor optimism the day before the Christmas
holidays.
Dec 24 (BusinessDesk) – The focus on this holiday-shortened week on both sides of the Atlantic will remain keenly on the
attempts to reach a US budget deal after talks ground to a halt.
Trading had been going along swimmingly during Asian markets hours until news of the Republican –non vote threw a
spanner in the works, which saw risk assets quickly reverse course. But even if Republicans agreed to this plan, the
Democrats had already ...
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