Officials warn U.S. debt crisis approaching a fiscal cliff

July 23, 2012 – WASHINGTON – The effect on the USA of its casually wandering over the Fiscal Cliff will be catastrophic; adding approximately $607bln to the US deficit which in turn would sap anywhere up to 4% (according to the CBO) or possibly even 5% (if Chairman Bernanke—in full-on ‘scare Congress’ mode—is to be believed) from US GDP and send the country crashing into outright recession (or further into recession depending on how things continue to deteriorate in the coming months). “That we cannot have” was the opinion of Erskine Bowles who, along with former Sen. Alan Simpson, devised a debt reduction plan last year to prevent this doomsday scenario…. According to the OMB estimates, any attempt to do something remotely meaningful will result in at least a percentage point reduction in US GDP, which is fine in a world of 3% growth, but today that 1% is not something these guys have to play around with. In the run-up to December 31, you can guarantee that the issue of the US Fiscal Cliff will replace Europe as the major concern facing the world in general and the US in particular and, if things continue to deteriorate at their current pace, anything that will lead to even a 0.5% cut in GDP will be seen as a disaster. The Washington Post said: “For much of the year, economists worried about the impact of the slowdown in Europe on the U.S. economy. Now, analysts say anxiety about the  impact of the fast-approaching fiscal cliff — the series of federal spending cuts and tax hikes set to take effect at the beginning of 2013 if Congress and  the Obama administration do not act — is displacing Europe as the primary threat to the nation’s sputtering economy. Morgan Stanley said this week that concerns about the fiscal cliff are reaching new heights across a wide range of industries. It is already seeing reductions in business orders and hiring, among other areas. ‘While our analysts are somewhat less worried about the impact of European bank strains,’ a Morgan Stanley report said Monday, ‘the negative impact of fiscal cliff uncertainty is becoming more widespread.’ The potential economic impact could smother the flickering recovery and further stifle job creation, analysts warn.”  –Zero Hedge
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