There is less than two weeks before the U.S. economy hits the Fiscal Cliff. Unless averted, the Fiscal Cliff may lead the U.S. into another recession.
The media is eating up all of the quotes and comments, it is rightly so that they are. What is on the line is critical, and both parties understand this. Speaker Boehner’s wavelength of thinking and President Obama’s wavelength of thinking do not cooperate.
Fiscal Cliff Developments
Obama is now adjusting his proposal saying that he is willing to move the $250,000 mark to $400,000. This means, instead of all of the households earning $250,000+ per year being taxed higher, the tax increase will be for households making $400,000+ per year.
Boehner has also proposed a new plan, it is called “Plan B”. Boehner’s stance of no tax hikes has been compromised, but him and Obama are still miles apart in their thinking. Boehner’s new proposition is to implement tax hikes only on American households making $1,000,000 or more per year. In other words, keep the Bush era tax deductions in place with everyone except for households making $1,000,000 per year or more.
The truth is, even plan B will hurt small business because of the tax raises.
Currently, with less than two weeks to go, a deal does not seem to be in sight. As a matter of fact, the blame game has seemed to already start. Usually, blaming other people happens after a great failure. The two parties’ blame game is a negative sign that we may not have a deal agreed upon by January 1st.
Many think it is likely that a last-minute deal will be meet before the January 1st, 2013 deadline. I tend to think this will take place to because of the stakes at risk. Is it possible that they can decide to push the deadline back a couple months for more time to make a decision?
The Fiscal Cliff and Holiday Spending
The Fiscal Cliff and holiday spending are two intertwined topics this Christmas season.
According to Bankrate’s December Financial Security Index, 33% of Americans have cut back on personal spending in result of the Fiscal Cliff situation. (Fox Business)
In this season and even in the following months, if Americans do cut back on their overall spending it, the American Gross Domestic product could take a hit, not to mention all of the other Fiscal Cliff plan and implementations coming into effect soon.
The Fiscal Cliff and Forex Trading
As trader’s, let us be aware of increasing volatility as the month progresses. Forex trading could become more dangerous at the beginning of the new year. With investors not knowing what the Fiscal Cliff decision will be, or the reaction of the markets in spite of the decision, trading the first few days (or weeks) of January may be an extra risky effort.
I tend to think Risk Aversion would usually come into play on a scenario such as this. With so much speculation of Dollar weakness and the U.S. economy in it’s current state, sentiment might be powerful enough to avoid a risk aversion scenario. I would love to hear your thoughts on this issue, I think it is a very grey area.
If no deal is reached, tax increases and spending cuts will automatically be implemented. What would be worse for the economy: These automatic tax hikes and spending cuts if no decision is reached? Or, would it be worse for America if Obama’s plan were to pass, taxing households who earn $400,000+ per year, therefore hurting job growth at costly levels?
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