America's impending "fiscal cliff" is nothing more than another "Y2K" and whoever wins the Presidential election later this year will be forced into averting financial crisis, according to analysts.
By the end of the year, the US government must decide either to let current policy go into effect – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – or cancel some or all of the scheduled tax increases and spending cuts - which would add to the deficit and increase the odds that the US could face a crisis similar to that which is occurring in Europe.
UBS analysts have compared the "hand-wringing" over the issue with the 1999 "Y2K" computer bug that threatened to shut down global electronic systems and cause unprecedented chaos in financial markets.
Subsequent changes to software and hardware meant the Y2K meltdown never materialised. However, the analysts believe the widespread concern over the fiscal cliff is a similar story, with most people ignoring the fact that the federal deficit is being "easily financed" at the moment.
Ahead of a Presidential election in November, UBS argues that Republican candidate Mitt Romney will "extend all of the expiring Federal income tax cuts, raise defence spending and probably cut existing tax rates" should he win.
This would counter concerns from the US defence sector that cuts would cause hundreds of thousands of jobs losses, and be enough to avert the fiscal cliff until a more permanent solution can be found in 2013 or possibly even later. If Barack Obama is re-elected, his Democratic party would probably retain control of the Senate.
They would also be able to recapture a few dozen seats in the 435-member House of Representatives expected to be lost by the Tea Party wing of the Republicans.
"A noticeably lesser Tea Party representation in the House should spell less fiscal political gridlock with a re-elected President Obama," the UBS analysts stated.
Economic pledges appear to be the way to win the race to the White House, with a CNN/ORC poll showing 52pc of the US public believes the economy is the most important issue today, with just 18pc saying the same for the budget deficit.
Seen in this light, a postponement of the fiscal cliff problem appears likely. If matter worsen significantly then one “shock absorber” could be another round of quantitative easing by the Federal Reserve, UBS claims.
Since late 2008, the Fed has bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades.
telegraph.co.uk
By the end of the year, the US government must decide either to let current policy go into effect – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – or cancel some or all of the scheduled tax increases and spending cuts - which would add to the deficit and increase the odds that the US could face a crisis similar to that which is occurring in Europe.
UBS analysts have compared the "hand-wringing" over the issue with the 1999 "Y2K" computer bug that threatened to shut down global electronic systems and cause unprecedented chaos in financial markets.
Subsequent changes to software and hardware meant the Y2K meltdown never materialised. However, the analysts believe the widespread concern over the fiscal cliff is a similar story, with most people ignoring the fact that the federal deficit is being "easily financed" at the moment.
Ahead of a Presidential election in November, UBS argues that Republican candidate Mitt Romney will "extend all of the expiring Federal income tax cuts, raise defence spending and probably cut existing tax rates" should he win.
This would counter concerns from the US defence sector that cuts would cause hundreds of thousands of jobs losses, and be enough to avert the fiscal cliff until a more permanent solution can be found in 2013 or possibly even later. If Barack Obama is re-elected, his Democratic party would probably retain control of the Senate.
They would also be able to recapture a few dozen seats in the 435-member House of Representatives expected to be lost by the Tea Party wing of the Republicans.
"A noticeably lesser Tea Party representation in the House should spell less fiscal political gridlock with a re-elected President Obama," the UBS analysts stated.
Economic pledges appear to be the way to win the race to the White House, with a CNN/ORC poll showing 52pc of the US public believes the economy is the most important issue today, with just 18pc saying the same for the budget deficit.
Seen in this light, a postponement of the fiscal cliff problem appears likely. If matter worsen significantly then one “shock absorber” could be another round of quantitative easing by the Federal Reserve, UBS claims.
Since late 2008, the Fed has bought $2.3 trillion in long-term securities in an unprecedented drive to spur growth and revive the economy after the worst recession in decades.
telegraph.co.uk
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