Sandy Sends Congress a Fiscal Wake-up Call

Sandy Sends Congress a Fiscal Wake-up Call

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Will Hurricane Sandy’s costly path of destruction serve as a wake-up call to Congress to get the country’s financial house in order and avoid sending the country over the fiscal cliff and into another recession?

Some seem to think so.

CNN’s Paul La Monica writes that while obviously Congress had no way of preventing the devastation of Hurricane Sandy along the East Coast, lawmakers can prevent the metaphorical storm of looming tax hikes and spending cuts that threaten to wreak havoc on the country’s economy.

“Politicians shouldn't just respond to crises. They should also act to prevent them when they can.” La Monica wrote. “All Congress and President Obama need to do after the election is sit down, stop behaving like petulant little children and start acting like leaders.”

Though it’s too early to say for certain, economists are anticipating that the economic impact of Sandy could shave about $20 billion off the nation’s gross domestic product in the fourth quarter. Combine that with the Congressional Budget Office’s projection of a shallow recession in 2013 if nothing is done about the fiscal cliff, and you have some very bad economic news for the nation.  -  Read more at CNN

Unfazed so far by the potential for falling bond prices, investors who have poured nearly $260 billion into the bond market so far this year might be in for a rude awakening. If interest rates rise one percent over the next 12 months, investors face a 9 percent reduction in principal, with the 10-year Treasury at a duration of about nine years. If the rate increases by 2 percent, the investor will see an 18 percent reduction.  Ouch.

"Basic bond math is something that a lot of investors in this yield-starved environment we're in are either unaware of or are choosing to ignore because we've been so spoiled by very low interest rates," said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. Grohowksi said that while it is unlikely interest rates will rise by one percent over the next 12 months, he anticipates that rates will ultimately be higher.

“Investors should not confuse the Fed’s pledge to keep interest rates low at the short end with what might happen at the intermediate and longer end if we get even a whiff of inflation,” he warned. -  Read more at The Wall Street Journal


Here’s an interesting factoid: If Congress does nothing to block the scheduled year-end surge in tax rates and across the board cuts in government spending, the United States will have one of the most severe austerity policies in the world.

Quartz’ David Yanofsky writes that without action from Congress and the White House, “the US government’s budget footprint will contract more rapidly than those of Greece, the United Kingdom, Spain and Italy, all countries where post-crisis austerity measures sent protestors into the streets and growth plunging.”

As the Congressional Budget Office has estimated, if the country spirals over the fiscal cliff, the U.S. will see deficit reduction equal to 5.1 percent of gross domestic product in 2013. According to Yanofsky, this is the steepest consolidation since 1968, when tax hikes led to deficit reduction equal to 3.2 percent of GDP, and the 1969-70 recession. -   Read more at Quartz

Investors are still very concerned about the looming fiscal cliff, according to a VIX and More survey published on Seeking Alpha, a stock analysis website. Investors’ concern over the fiscal cliff was followed closely by fears of the European debt crisis, weak earnings and the U.S. elections. Read more at Seeking Alpha

For more news on the approaching fiscal cliff, follow us on Twitter@Fiscalcliffnote

Brianna Ehley is the former Washington Correspondent for The Fiscal Times. She is currently a reporter on Politico's health care team in Washington, D.C.