Will the U.S. Dollar fall and shatter into a million pieces leading the U.S. into another recession? How will American citizens react when they feel the impact of the fall?
First of all, what is this cliff called fiscal? I mean, I guess “ fiscal cliff ” sounds catchy and is already sort of a cliché but, what is this thing? Let’s take a look…
U.S. Fiscal Cliff
The fiscal cliff is not as intangible as it may seem. Many economists and reporters refer to the fiscal cliff’s possible implementations and influences but neglect what the cliff consists of.
With the recent decline in stocks and rise of the U.S. Dollar’s value, it appears U.S. investors are retreating on risk because of the coming Fiscal Cliff. Risk Aversion is in full swing as investors want their cash in safe haven currencies, like the U.S. Dollar.
The United States Fiscal Cliff is on the way because of a 2001 bill passed as well as a 2011 prolonging of the policy. We will look deeper into that later in the article.
Fiscal is simply defined as “relating to government revenue, esp. taxes, or relating to financial matters.” Cliff can be used to describe the potential “fall” of the U.S. economy. January 1, 2013 is a date by which we will have a more clear understanding whether or not the economy will “fall” off the Fiscal Cliff.
Ben Bernanke, the Federal Reserve Chairman coined the term “fiscal cliff” last February.
What got us here?
The stakes are very high. The severity of this budget dilemma is unparalleled in the last 15 years. The White house needs to get something worked out in the next 7 weeks and it doesn’t appear like it’s going to be “a walk in the park”. With democrats and republicans approaching the situation on different wave lengths, it will be a challenge for them to work together at building a fence that will keep the dollar from tumbling down, down, down… down, the fiscal cliff.
The pioneer event leading into this current predicament transpired in the Bush-era in the year of 2001. President Bush implemented tax cuts, extending a 10 year period. President Obama continued this prescription in 2011, extending it until January 1, 2013.
Let’s fly back to the year 2001 and look at where this was birthed. “Across-the-board tax relief does not happen very much in Washington, D.C., in fact it has happened only twice: President Kennedy’s tax cut in the ’60s and President Reagan’s tax cut in the ’80s,” … “And now it’s happened for a third time. And it’s about time.” – President George W. Bush
Since this time 12 years has passed. It has went by very quickly as many of you can testify to. We are now looking at rates climbing back to what we paid in 2001. Well, what’s the big deal? The big deal is that experts are warning of government spending cuts and a potential recession.
This is the Fiscal Cliff. The U.S. Economy is driving right towards it. The Cliff is insight. It could be an earth shaking fall. Will the White house change the economy’s figurative GPS so we can avoid the fall? We’ll find out very soon. The recent Quantitative Easing initiative in September also plays a part in a possible U.S. downward spiral.
In conclusion, it is a possibility that we will see a bipartisan decision made in the coming weeks to avoid the U.S. Fiscal Cliff but, it is also possible that no agreement will be settled on.
In the time being, it is likely that investors will continue to invest in safer currencies, the U.S. Dollar could continue to rise in value , while stocks may continue to fall. The New Year will give us a new look on the U.S. Economy and it may not be so good looking.
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