Psychological Effects of the Fiscal Cliff

Republican Vs. Democrat. The polarization in our culture birthed in the last 50 years could hurt America by far more than just tax increases and spending cuts.

As the Fiscal Cliff clock runs down, the right and the left in Washington are still miles apart on a decision.

President Obama and Speaker Boehner are approaching the solution to avert the Fiscal Cliff with two totally different thought processes. These two wavelengths are not collaborating, and are leaving some hopeless of reaching a decision before the January deadline.

With no decision reached, the bush-era taxes and spending cuts will be automatically implemented in 2013.

A study done by George Mason University’s Center of Regional Analysis estimated a loss of 2.1 million jobs by spending cuts alone. This study does not take into consideration the effects of tax increases. (The Washington Times)

A failure to compromise in the next week will possibly lead America into it’s next recession. In addition to a recession, many my lose confidence in our government to lead itself.

The psychological effects of this scenario could sadly lead to more of a government dependent economy. That would corrode the government further and goes against the basic principle that government should “protect not provide”.

Small business morale could be hurt. Not only from tax increases but from the intimidation of the governments procedures and corrupt morality to steal from the rich.

The Forex market and Forex trading pattern will be interesting and dangerous in the coming months as the Fiscal Cliff outcome influences trading. How long risk aversion will last is uncertain. With recent bullish euro news, it is possible that 2013 may be a year for a strong Euro and a weak Dollar.

A falling stock market can correlate with a strong Dollar, as we saw in 2008. If 2013 is a repeat of the last recession, we could see results like the 2008 crash. If the Dollar’s sentiment is significantly weaker than 4 years ago, risk aversion may not be as foreful as we have seen in the past.

Visit this link to see the relation between Forex Trading and the Fiscal Cliff.

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