US worst-case scenario: going over fiscal cliff

Letting the US economy go over the fiscal cliff would push the United States, and probably other countries, into a new crisis that political leaders now say they are determined to avoid.

The fiscal cliff, a combination of mandated tax increases and spending cuts, will occur in January unless President Barack Obama and Democratic and Republican lawmakers forge a long-sought deal.

If they fail, federal government spending for the 2013 fiscal year, which began on October 1, will be slashed by $109 billion.

Tax increases would be broad-based. According to the Tax Policy Center, a nonpartisan research center, nearly 90 percent of Americans would pay more taxes, boosting the country's tax revenues more than 20 percent above what they would be without the cliff.

Middle-class households would be hit with an almost $2,000 tax increase on average.

Economists fear that the tax hikes, likely to curb consumer spending, combined with sharp cutbacks in federal spending, would drive the world's largest economy back into recession.

The US Federal Reserve has warned for months that it lacks the means to prevent the economy from falling back into a slump. Despite massive support from the central bank, the struggling economy has not yet fully recovered from the Great Recession that ended in June 2009.

Federal Reserve chairman Ben Bernanke, who coined the term "fiscal cliff," has put the onus on Washington to unlock political gridlock and come up with sustainable budget plans.

According to the latest projections from the Congressional Budget Office (CBO), the fiscal cliff would result in the economy shrinking 0.5 percent in 2013, and the unemployment rate would rise to 9.1 percent, compared with the 7.9 percent jobless rate in October.

An economics professor at the University of Maryland, Peter Morici, sees that scenario as too optimistic.

Morici said the fiscal cliff could trigger "cataclysmic consequences" for the economy.

"Unemployment would rocket past 15 percent, state government finances would collapse, homeowners would default on mortgages, and hundreds of banks would fail," he said.

IHS Global Insight analysts noted that the fiscal cliff is just one of several global events the firm had analyzed for the its worst-case outlook for 2013.

The doom scenario also incorporates a worsening of the eurozone financial crisis, escalating conflict in the Middle East and a hard landing in China's economic slowdown.

The scenario "is predicated on a confluence of these events happening in succession, significantly impacting global demand and commodity prices in 2013," IHS Global Insight analysts said.

US gross domestic product (GDP) would shrink 1.7 percent 2013, they projected, but that would be mild compared with recessions in other countries, such as Italy or Spain, where the contraction would exceed 4 percent.

The nonpartisan CBO predicts that if the economy topples over the cliff, the budget measures will reduce the government deficit to 4.0 percent of GDP in 2013, from 7.6 percent in 2012.

For former Republican congressman Bill Frenzel, now a guest scholar at the Brookings Institution, toppling over the fiscal cliff "is good policy, but only if you like recessions, enjoy unemployment, and don't mind living in the ashes."

"Responsible politicians will avoid it at all costs."

With the fiscal cliff imminent and the November 6 elections over, Obama and leaders of Congress have said they would do everything they can to find a compromise to avoid it.

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...

Explore Related Contents

  • Stamps.com beats Street 4Q forecasts Associated Press - 50 minutes ago

    The El Segundo, California-based company said it had net income of $1.61 per share. Earnings, adjusted for pretax expenses and stock option expense, were $2.73 per share. The results surpassed Wall Street ... … More »

  • Baidu's quarterly revenue falls 2.6 percent
    Baidu's quarterly revenue falls 2.6 percent Reuters - 53 minutes ago

    Analysts on average had expected revenue of 18.23 billion yuan, according to Thomson Reuters I/B/E/S. The revenue slowdown comes as Baidu rides out a public and regulatory backlash triggered by the death of a 21-year-old student who underwent an … More »

  • Baidu's quarterly revenue falls 2.6 percent
    Baidu's quarterly revenue falls 2.6 percent Reuters - 54 minutes ago

    (Reuters) - Baidu Inc (BIDU.O) reported a second straight drop in quarterly revenue as regulatory scrutiny into healthcare and related advertisements continued to take a toll on the Chinese internet search ... … More »

  • Tesla may wait until July before revealing the final version of the Model 3
    Tesla may wait until July before revealing the final version of the Model 3 Business Insider - 1 hour 0 minutes ago

    AP Photo/Justin Pritchard Tesla Motors unveils the new … Continued The post Tesla may wait until July before revealing the final version of the Model 3 appeared first on Business Insider. … More »

  • Asian Stocks Signal Cautious Start as Yen Gains: Markets Wrap Bloomberg - 1 hour 2 minutes ago

    The dollar held losses after Treasury Secretary Steven Mnuchin said on Fox Business that fiscal stimulus effects on the economy this year may be limited. Australian stock futures pointed lower and the Aussie climbed as traders tuned in to RBA … More »

  • Homeland Security chief: No use of military for deportations
    Homeland Security chief: No use of military for deportations Associated Press - 1 hour 4 minutes ago

    Seeking to tamp down growing unease in Latin America, U.S. Homeland Security Secretary John Kelly pledged Thursday that the United States won't enlist its military to enforce immigration laws and that ... … More »

  • Exclusive - Trump calls Chinese 'grand champions' of currency manipulation Reuters - 1 hour 4 minutes ago

    President Donald Trump declared China the "grand champions" of currency manipulation on Thursday, just hours after his new Treasury secretary pledged a more methodical approach to analysing Beijing's foreign exchange practices. In an exclusive … More »

  • Assured Guaranty posts 4Q profit Associated Press - 1 hour 7 minutes ago

    On a per-share basis, the Hamilton, Bermuda-based company said it had profit of $1.49. Earnings, adjusted for non-recurring gains, were $1.05 per share. The insurance holding company posted revenue of ... … More »

  • AIA Group FY new businesses rise 28 percent Reuters - 1 hour 15 minutes ago

    Life insurer AIA Group Ltd reported a 28 percent jump in new business in 2016, as it benefited from strong customer demand in its main markets of China and Hong Kong. The Hong Kong-based insurer's value of new business, which measures expected … More »

  • 7 Data-Driven Ways Of Saving On Your Monthly Recurring Bills
    7 Data-Driven Ways Of Saving On Your Monthly Recurring Bills ValuePenguin - 1 hour 15 minutes ago

    Every month, we get bills from various services like telcos and Singapore Power that we need to take care of just to be able to continue getting vital services we need to function normally. According to ValuePenguin's study, the average cost of … More »

  • Business Highlights Associated Press - 1 hour 20 minutes ago

    ___ US factory CEOs to Trump: Jobs exist; skills don't President Donald Trump brought two dozen manufacturing CEOs to the White House on Thursday and declared their collective commitment to restoring factory ... … More »

  • Baidu's Quarterly Revenue Tops Estimates on New Business Push Bloomberg - 1 hour 22 minutes ago

    Revenue for the fourth quarter was 18.21 billion yuan ($2.62 billion), compared with estimates for 18.17 billion yuan, Baidu said in a statement. Net income, adjusted for certain items, was 4.61 billion yuan, compared with the 2.52 billion yuan … More »

  • Dow stands out as global stocks tread water
    Dow stands out as global stocks tread water AFP News - 1 hour 30 minutes ago

    The blue-chip Dow was the lone riser among major stock indices on Thursday as global markets largely ran in place. On Wall Street, the Dow Jones Industrial Average broke a 30-year record by closing at a tenth consecutive all-time high, ending the … More »

  • Spectranetics reports 4Q loss Associated Press - 1 hour 35 minutes ago

    The Colorado Springs, Colorado-based company said it had a loss of 29 cents per share. Losses, adjusted for costs related to mergers and acquisitions and non-recurring costs, were 21 cents per share. The ... … More »

  • RE/MAX beats 4Q profit forecasts Associated Press - 1 hour 37 minutes ago

    On a per-share basis, the Denver-based company said it had profit of 22 cents. Earnings, adjusted for non-recurring costs, were 41 cents per share. The results exceeded Wall Street expectations. The average ... … More »

  • Pegasystems posts 4Q profit Associated Press - 1 hour 45 minutes ago

    On a per-share basis, the Cambridge, Massachusetts-based company said it had net income of 11 cents. Earnings, adjusted for one-time gains and costs, came to 20 cents per share. The business software company ... … More »

  • How major US stock market indexes fared on Thursday Associated Press - 1 hour 46 minutes ago

    Stocks wobbled Thursday as investors changed course and tempered their expectations for faster economic growth. Industrial companies, which have surged over the last few months, finished lower as Wall ... … More »

  • Stocks end mixed as investors seek safety; industrials slide
    Stocks end mixed as investors seek safety; industrials slide Associated Press - 1 hour 48 minutes ago

    Stocks wobbled Thursday as investors changed course and tempered their expectations for faster economic growth. Industrial companies, which have surged over the last few months, finished lower as Wall ... … More »

  • Oil prices up but gains pared after 7th straight stock build
    Oil prices up but gains pared after 7th straight stock build Reuters - 1 hour 49 minutes ago

    By Catherine Ngai NEW YORK (Reuters) - Oil prices rose on Thursday but gains were pared after U.S. government data showed a seventh straight build in crude stocks, suggesting high inventories could undermine ... … More »

  • BJ's Restaurants beats Street 4Q forecasts Associated Press - 1 hour 49 minutes ago

    The Huntington Beach, California-based company said it had profit of 55 cents per share. The results surpassed Wall Street expectations. The average estimate of eight analysts surveyed by Zacks Investment ... … More »

  • Hewlett Packard Enterprise Cuts Forecast on Costs, Cloud (1) Bloomberg - 1 hour 50 minutes ago

    Analysts projected 47 cents, according to data compiled by Bloomberg. Chief Executive Officer Meg Whitman -- who has been slimming down the company -- is battling rising competition from cloud-based technology providers that let customers access … More »

  • HP Enterprise misses revenue estimates, cuts FY profit forecast
    HP Enterprise misses revenue estimates, cuts FY profit forecast Reuters - 1 hour 50 minutes ago

    HPE said it expected full-year adjusted profit of between $1.88-$1.98 per share, down from $2-$2.10 it forecast earlier. Analysts on average were expecting a profit of $2.05 per share, according to Thomson Reuters I/B/E/S. … More »

  • Applied Optoelectronics posts 4Q profit Associated Press - 1 hour 51 minutes ago

    On a per-share basis, the Sugar Land, Texas-based company said it had profit of 77 cents. Earnings, adjusted for stock option expense and non-recurring costs, were 84 cents per share. The results surpassed ... … More »

  • HP Enterprise misses revenue estimates, cuts full-year profit forecast
    HP Enterprise misses revenue estimates, cuts full-year profit forecast Reuters - 1 hour 51 minutes ago

    (Reuters) - Hewlett Packard Enterprise Co (HPE.N), the corporate hardware and enterprise software business of Hewlett-Packard Co, reported lower-than-expected quarterly revenue and cut its full-year profit ... … More »

  • Imax tops Street 4Q forecasts Associated Press - 1 hour 55 minutes ago

    On a per-share basis, the Ontario Canada, Ontario-based company said it had profit of 13 cents. Earnings, adjusted for stock option expense, came to 22 cents per share. The results exceeded Wall Street ... … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.27+0.02+5.88%
    N21.SI
    0.198+0.022+12.50%
    40F.SI
    1.03+0.05+5.10%
    G13.SI
    0.131+0.017+14.91%
    41F.SI
    0.395+0.035+9.72%
    5ME.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.325+0.075+30.00%
    PA3.SI
    1.815+0.280+18.24%
    S51.SI
    0.128+0.017+15.32%
    UV1.SI
    0.53+0.07+15.22%
    BLR.SI
    0.131+0.017+14.91%
    41F.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.10-0.03-21.26%
    A7S.SI
    0.145-0.034-18.99%
    AZR.SI
    0.094-0.014-12.96%
    5DL.SI
    0.295-0.040-11.94%
    BPF.SI
    0.20-0.02-9.09%
    SK3.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.4076+0.00010.00%
    USDSGD=X
    1.4896+0.0007+0.05%
    EURSGD=X
    1.7673+0.0008+0.05%
    GBPSGD=X
    80.0640+0.0020.00%
    SGDJPY=X
    5.5109+0.00010.00%
    SGDHKD=X
    3.1606-0.002-0.06%
    SGDMYR=X
    9,518.5498-5.7852-0.06%
    SGDIDR=X
    4.8750-0.0028-0.06%
    SGDCNY=X
    1.0858+0.0003+0.03%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,250.20-1.20-0.10%
    GCJ17.CMX
    18.17+0.05+0.26%
    SIH17.CMX
    89.61-0.30-0.34%
    ^XAU
    2.640.00-0.15%
    HGH17.CMX
    54.37-0.08-0.15%
    CLJ17.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.88-0.03
    ^FVX
    2.39-0.03
    ^TNX
    3.02-0.01
    ^TYX