It's being called a failure, a miscalculation and a move that could even cost House Speaker John Boehner his job, but in reality, it's the country that ends up losing. Sure, the Ohio Republican failed to get enough support within his own party to pass his "Plan-B" proposal to avoid the Fiscal Cliff. But even if he had gotten the votes and it passed the House, the bill that would have extended tax cuts on anyone earning less than a million dollars was facing certain death in the Senate and the White House.
Reaction to the latest impasse in the negotiations has been predictably partisan in Washington and mostly mixed on Wall Street, where stocks began the day lower, though only by about one percent. As my co-host Jeff Macke and I discuss in the attached video, the matter goes into the "now what?" phase, where the two sides will endeavor to vilify each other in an attempt to win the blame game, rather than working to "actually fix the problem," as House Majority Leader Eric Cantor says.
Although the stakes are high, in fact in the trillions of dollars, it is our belief that a clean-up pact will be reached some time in early 2013 that will undo most of the damage done as a result of the automated tax increases and spending and benefit cuts that are set to take place ten days from now. Until then, as I say in the attached clip, we will all continue to be witness to a huge political game where the American people will serve as referees to determine who wins the battle to spin a better story.
While the holidays will impose a few days of relief, the reality of the impending cliff dive is nigh. It's a plunge that will seem almost invisible at the outset but will gain traction, week by week, as shrunken paychecks cause households to recalibrate their spending. How quickly and severely the automated budget cuts and tax increases affect the economy won't be officially known until Q1 GDP comes out in the spring, but anecdotal evidence will be plentiful right from the start, and will take an immediate and mounting toll on confidence.
The longer that festers, the deeper the wound, and the higher the chance that we go back into recession.
