Tuesday, 1 January 2013

Fiscal Cliffhanger

The United States will go over the fiscal cliff at midnight (EST, 05:00 GMT). The good news is Senate is close to a deal that will stop the effects being felt by ordinary US citizens.

The fiscal cliff is the term being used to describe the deadline for the United States to agree to a plan to avoid the country defaulting on its debts, as legally the US cannot borrow any more than it is currently. At midnight, a number of temporary tax cuts will expire and simultaneously massive spending cuts will kick in - dwarfing those carried out by the UK over the last few years - totaling $607bn.

It's reported that Senators are close to an agreement over taxes, but are still divided over spending cuts. Sound familiar? The whole point in the cliff is to break the stalemate over such a deal, as both the Republicans and Democrats have too much to lose by allowing the effects of the cliff to be felt by the country (i.e. hitting the ground below). If a deal is within touching distance then the country will be caught before hitting the bottom and hopefully be guided to safety. If not then it will hurt, and hurt hard!

Luckily, with the start of the new year, the world is closed for business on Tuesday. All major markets are closed and government is officially on holiday. That means there will be no knee jerk reaction and buys the legislators valuable time to thrash out the details when both houses reconvene on Wednesday.

Oh, and if it does all go tits up - don't worry about the eurozone crisis anymore. The problems in the US will make Europe look like it was squabbling over a beach ball!