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    Posted November 9, 2012 by
    Farmersburg, Indiana
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    Can the Nation Afford a Plunge Over the Fiscal Cliff?


    In  just over 50 days, the nation will rush headlong over the fiscal cliff.  The cliff is a combination of tax cuts expiring and automatic spending  cuts across the board. Unless averted, the threat is the country will  spiral downward into an abyss of recession and loss of hundreds of  thousands of jobs.

    Can the nation afford a plunge over the fiscal cliff?

    If  a report released yesterday by the nonpartisan Congressional Budget  Office is to be believed, the answer is the country will survive, but  barely. The resulting economic tsunami could see unemployment rising to a  rate over 9% and could impact and destabilize markets and economies  around the world. Europe is alreay teetering and a US plunge could  hasten the demise of the Euro Zone.

    As reported by the Christian Science Monitor, here is what the CBO warns:

    America’s  budgetary scorekeepers have published a postelection “FYI” for the  president and Congress, with this blunt message: That “fiscal cliff”  thing is dangerous, but so is the opposite policy of ignoring the  national debt.

    Economists at the nonpartisan Congressional  Budget Office (CBO) warned in a report Thursday that allowing those tax  hikes and spending cuts to occur “will probably cause the economy to  fall back into a recession next year.”

    But, the CBO report  added in the next breath, letting the policy changes take effect would  actually “make the economy stronger later in the decade and beyond.” The  reason: The tax hikes and spending cuts would reduce federal deficits,  thus avoiding a dangerous surge in federal debt as a percentage of gross  domestic product (GDP).

    The ideal way forward, suggested in  the CBO report and in other independent reviews, would be to change the  cliff into a gradual slope – one that avoids recession in the near-term  but still leads down a path of deficit reduction. It’s not just a matter  of saying, “Let’s postpone those tax and spending changes.”

    Some overview points from the report and other recent CBO analysis:

    • The option of doing nothing isn’t pretty. If policymakers push the  economy straight over the cliff on Jan. 1, a recession would probably  result, yielding a decline of 0.5 percent in GDP for the calendar year.  The unemployment rate would shoot up to 9.1 percent, the CBO predicts.

    • The option of fully removing the cliff would result in an economy  that grows, but not at a roaring pace. A separate analysis released  Thursday by the CBO estimated that keeping Bush-era tax rates in place,  nixing the cuts in defense and other spending, and making other changes  (including extending payroll-tax relief for workers) would push GDP up  to a growth rate of about 2.4 percent.

    • But fully removing the  cliff adds a lot to the federal deficit. Spending would exceed revenue  by an extra $503 billion in 2013. That’s equal to more than 3 percent of  a year’s GDP.

    • Doing nothing to stem the red ink would have  long-term consequences. The CBO outlines negative effects including an  impaired ability to respond to unexpected challenges, as well as “an  increase in the likelihood of a fiscal crisis, in which investors would  lose confidence in the government’s ability to manage its budget, and  the government would thus lose the ability to borrow at affordable  interest rates.”


    The full CBO report can be read here: http://cbo.gov/publication/43692

    From  the Cornfield, now is not the time to play chicken, but for the White  House and the Congress to work together and find a solution.

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