Practical analysis for investment professionals
15 November 2012

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

Posted In: Economics

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?

Poll Results: 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.”

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Ron Rimkus, CFA

Ron Rimkus, CFA, was Director of Economics & Alternative Assets at CFA Institute, where he wrote about economics, monetary policy, currencies, global macro, behavioral finance, fixed income and alternative investments, such as gold and bitcoin (among other things). Previously, he served as SVP and Director of Large-cap Equity Products for BB&T Asset Management, where he led a team of research analysts, 300 regional portfolio managers, client service specialists, and marketing staff. He also served as a Senior Vice President and Lead Portfolio Manager of large-cap equity products at Mesirow Financial. Rimkus earned a BA degree in economics from Brown University and his MBA from the Anderson School of Management at UCLA. Topical Expertise: Alternative Investments · Economics

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

  1. I am sure there will be an agreement on the fiscal cliff before the year runs out.And I think the President and the Republican leader of the house sends a positive sign that they can definitely work things out.

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