Poll: Will US Lawmakers Avert the “Fiscal Cliff” Before the Global Economy Suffers?

In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked professional investors whether they expect lawmakers to act to prevent the impending “fiscal cliff” at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

Do you expect US lawmakers to avert the “fiscal cliff” before the global economy suffers deleterious effects?

Since the US elections on 6 November, the fiscal cliff issue has moved to the front and center of American politics. Will the economy experience a big increase in taxes and a simultaneous drop in government spending? If these events occur, how will the economy be affected? Many pundits are focused on the impact that the fiscal cliff could have on GDP. Is the United States headed for recession or not?

The discussion typically ignores, however, the massive amounts of debt that are used to finance GDP growth through both the government and the private sector. Aggregate debt in the United States is about $56 trillion and is growing at 5+% compared with a $15 trillion economy growing at 1.5%. The United States has reached a point where the incremental debt exceeds the incremental growth in GDP, suggesting that additional debt is counterproductive. The growth-at-all-costs policy means that much, if not all, of this new debt must be inflated away. This situation is what pundits mean by the “new normal.”

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