Of all the charts we've seen surrounding the so-called Fiscal Cliff, this might be the scariest one we've seen. It's from a Citi survey of clients taken a couple weeks ago.
It's not even close. The belief that all of the spending cuts and tax hikes will get pushed off is overwhelmingly what investors expect to happen.
The best reason to be optimistic is that recent history shows us that in the end, Congress staves off disaster. Certainly the debt ceiling negotiations last summer, even though they went to the brink, showed that the two parties can come together and avoid a catastrophe.
But this is not the debt ceiling all over again, in part because failure to reach an agreement would not be a catastrophe. It would just be really bad. And the lack of Mutually Assured Destruction means an agreement is not a sure thing.
In his weekend US Macro Dashboard note, Morgan Stanley's chief economist Vincent Reinhart suggests that the odds of a deal not getting struck have grown since Paul Ryan was picked.
It's not even close. The belief that all of the spending cuts and tax hikes will get pushed off is overwhelmingly what investors expect to happen.
The best reason to be optimistic is that recent history shows us that in the end, Congress staves off disaster. Certainly the debt ceiling negotiations last summer, even though they went to the brink, showed that the two parties can come together and avoid a catastrophe.
But this is not the debt ceiling all over again, in part because failure to reach an agreement would not be a catastrophe. It would just be really bad. And the lack of Mutually Assured Destruction means an agreement is not a sure thing.
In his weekend US Macro Dashboard note, Morgan Stanley's chief economist Vincent Reinhart suggests that the odds of a deal not getting struck have grown since Paul Ryan was picked.
Contesting the election on big fiscal
principles, however, also raises the chance of a punishing 2013
outcome. Individual election victors will rightly view themselves as
having a clear mandate from voters who had been given a clear choice.
But what happens if, in the aggregate, voters opt for a divided
government? If the control of the White House and the Congress
continues to be split, it might be even harder to compromise next year,
even compared to this year’s polarized results.
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