Economic Damage From Failed Fiscal Cliff Negotiations May Have Arleady Been Done; Analysts Say Markets Have Given Lawmakers Until Inauguration Day To Strike A Deal

Monday, December 31, 2012 07:59
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Economic Damage From Failed Fiscal Cliff Negotiations May Have Arleady Been Done; Analysts Say Markets Have Given Lawmakers Until Inauguration Day To Strike A Deal

Tags: Congress | markets | stocks

The fiscal cliff standoff is mirroring the debt ceiling standoff of 2011. The last minute save for the debt ceiling came too late to prevent a downgrade on US debt by major credit ratings agencies.
 
Even if a last-minute save is accomplished for the fiscal cliff, the damage to the economy has likely already been done.

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Consumers are pulling back on spending, business owners are holding back investments, and the markets are sagging.
 
More damage could be done if lawmakers fail to reach an agreement. Investors and consumers could pull back more, paving the way for retracement of the advances in the economic recovery to this point.
 
The combination of higher taxes and severe spending cuts would affect the economy much more directly.
 
Even if a partial patchwork type of solution is reached, there are many unaddressed issues that can drag the economy down and not from a level of economic strength but one of still questionable recovery.
 
This means the economy may not be resilient enough to weather the impact well.
 
Too much uncertainty can make markets volatile and investors know that well from past experience.
 
Many feel lawmakers could allow the markets to tumble as much as 10% before acting. The markets so far have not discounted a failed agreement. 

Industry analysts say the markets have given lawmakers until inauguration day to come up with a deal. Failure to do so could result in a significant drop.

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