The Two Deadliest Fiscal Cliff Myths

by Charles Goyette
 

MYTH #1:
“Don’t worry; Congress will not allow
this crisis to occur.”

Many observers genuinely believe that America will not suffer the effects of the largest tax increases and spending cuts in history after January 1.
Instead, they say, Congress will cancel or at the very least, postpone them; that it will once again “kick the can” down the road as it has so many times before.
They could be at least partially correct. There is a distinct chance that our sharply divided Congress could find a way to delay some of the tax increases and/or spending cuts — most likely, after the November 6 elections.
But these perennial positive pundits are missing two critical facts:
FIRST: Even if our cowardly Congress does find a way to delay the expiration of the Bush tax cuts ...
Three huge, NEW Obamacare taxes WILL STILL begin sucking billions of dollars out of the U.S. economy in 2013.
AND SECOND: Even if Washington’s Republocrats DO figure out a way to delay the spending cuts mandated by the Budget Control Act of 2011 ...
The nearly $1 trillion-per-year in stimulus spending that has kept the addicted U.S. economy from sinking (barely) since 2008 has now ended — and nobody but NOBODY in Washington has even begun to suggest a new round of stimulus spending.
THE BOTTOM LINE? Even if we see the very BEST-case scenario imaginable, new Obamacare taxes and the cessation of destructive stimulus spending will vaporize much more than $1 trillion after January 1.
No matter what Congress does between now and New Year’s Day, massive tax increases and spending cuts WILL clobber the U.S. economy and stock market throughout 2013 and beyond.

MYTH #2:
“There’s still plenty of time to prepare.”

Granted, January 1, 2013 is still nearly four months away: 114 days, to be precise — but you won’t have to wait until New Year’s Day to see the impact this crisis will have on the U.S. economy and stock market.
The plain truth is, the mere threat of the largest tax increases and government spending cuts in history is ALREADY having a substantial impact:

• U.S. manufacturing is shrinking: The ISM's subindex of new orders just fell from 48 in July to 47.1 in August — the lowest level since April 2009, when the U.S. was still in recession.
  
  
• Construction is withering: Last Tuesday, we learned that, thanks in large part to fears and uncertainty surrounding the fiscal cliff, U.S. construction spending fell again in July.
  
  
• U.S. banks are now in peril: Also last week, Moody’s lowered its outlook for the U.S. banking industry from “stable” to “negative,” citing the large tax increases and spending cuts slated for January 1 as a major reason.
  
  
• Investors are already ducking for cover: Last week, gold surged to six-month highs as global investors rushed to mankind’s greatest time-honored safe harbor investment in order to shelter their wealth from fiscal cliff chaos.

Perhaps most telling, U.S. businesses have virtually snapped their pocketbooks shut. Why? Because what lies ahead has them scared silly.
This week, for instance, the Washington Post reported the chief executive of a Fortune 50 industrial firm with operations in 180 countries told a reporter that, due to the threat of the fiscal cliff, "we're already holding back on things we'd otherwise be doing.”