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Thursday, April 19, 2012

US barrels toward a fiscal cliff - 1 - deficit reduction - MSN Money

US barrels toward a fiscal cliff - MSN Money

For all the well-paid analysts and sophisticated computer systems that dominate trading, Wall Street still can't seem to focus on more than one thing at a time.
For now, the focus has returned to the European debt crisis, as the issues that cut down Greece, Portugal and Ireland have hit Spain hard.
But very soon, as Election Day approaches, the attention will turn back to U.S. debt and deficit issues, which, as in Spain, are caused by too much debt and a government trying to avoid its budget-cutting duties. Remember last summer's debt-ceiling debacle and the market meltdown caused partly by the loss of the Treasury's AAA credit rating? Get ready for the sequel.
This time, however, Washington will have to contend not only with its new $16.4 trillion debt ceiling, but with the expiration of a long list of revenue measures (Bush tax cuts, payroll tax holiday and more) and automatic spending cuts that add up to a drag on growth of around 4% of the gross domestic product.
And unless something is done, it would all happen at once -- risking a new recession outright, since the International Monetary Fund is looking for the U.S. economy to expand by only 2.1% this year and 2.4% in 2013.

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