Now that the election is over, the pressure is on to do something about the fiscal cliff. The danger lies beyond economic ramifications. Economists say it would also bring into question the health of the US political system.
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Uncertainty resulting from political turmoil roiled the markets on Wednesday. It was the largest year-to-date in terms of both points and percentage decline.
President Obama is expected to initiate a new round of talks with Congressional leaders with the goal of achieving a grand bargain combining higher taxes and ways to save money through federal benefit programs.
House Speaker John Boehner cited the election as a mandate from the American people to find a way to work together.
Mr. Obama called all the four top Congressional leaders after the election and invited them to put aside their partisan interests and work with a common purpose.
Most are betting in Washington and on Wall Street that the fiscal cliff will somehow be avoided but not until the last minute when it looks like the cliff is inevitable.
The grand bargain would likely consist of waiving the fiscal cliff spending cuts, make a down payment on deficit reduction and agree to pass legislation that provides a framework for more deficit-reduction legislation.
To make such a bargain credible, Congressional committees would have to come up with a tax-overhaul bill sometime in 2013 to raise an agreed-upon amount of revenue and slow spending growth
on Medicare and other government programs.