It may be too late for the fiscal cliff effect to be avoided for the economy. Consumers and businesses are becoming increasingly uncertain about economic prospects as a result of failed negotiations.
So a last minute deal may not be enough to avoid a slowdown in economic growth. The damage may already have been done.
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Lawmakers will return from the holiday recess this week and President Obama will return to the White House on Thursday.
But there’s little hope—or time—for more than just a minimal agreement that will extend tax cuts for the middle class.
Larger issues concerning the deficit would continue to be a drag and could throw the economy back into recession, regardless of any last-minute deals.
Businesses are afraid to invest and consumers turned in a less than stellar holiday buying season.
For example, McMillan-Piper Inc., a family-owned freight-transport company in Seattle, has seen its business fall over the past five months.
A slowdown in growth during the first quarter could mean some of its 200 employees will lose their jobs.
There are three options currently on the table for the budget talks. One would be a partial agreement that extends several key components to give lawmakers more time to negotiate.
A second option would be to take action in January after the fiscal cliff has been crossed and the tax hikes and spending cuts have taken effect.
Lastly, if the negotiations take longer than January, the full brunt of economic fallout from the fiscal cliff will be felt.
Then there’s the debt ceiling which the Treasury may reach in early March. If the cliff is crossed over, many businesses will hyper react, placing the still nascent economic recovery
in serious jeopardy.