Driving Over the Cliff Could Save the Economy

Driving Over the Cliff Could Save the Economy

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While many both inside and outside Washington are focusing on how best to avert a year-end economic train wreck of big tax increases and spending cuts, some experts are claiming the best solution could be no solution at all. Fortune’s John Cassidy takes the unorthodox position that, “crazy as it might sound, the expiration of the tax cuts could turn out to be a blessing in disguise.”

Cassidy argues that allowing the Bush-era tax cuts to expire at the end of the year could be the answer. “If the lame-duck Congress does nothing at all when it meets after the election, the tax increases and spending cuts will go into effect on Jan. 1 … The long-term fiscal outlook would be transformed, and the threat of a recession would be greatly reduced. In a dysfunctional political system such as ours, it sometimes takes unorthodox tactics to get important things done. This is one of those times. Bring on the fiscal cliff!” - Read more at Fortune

TIME TO ADD RISK? While some on Wall Street are warning about the dangers of fiscal-cliff apathy, Barclays’ Larry Kantor says that recent economic readings should actually be pushing investors to move into risk-sensitive stocks and corporate bonds:

“It’s not that we’re expecting the economy to do a whole lot better. It’s more than the absence of a negative,” Larry Kantor said on CNBC on Monday. 

“People were getting very nervous about the U.S numbers, which were very weak, as you know, until about a month ago,” added Kantor.  “But now you’re seeing better-than-expected retail sales, a better-than-expected employment report, better-than-expected auto sales.” - Read more at CNBC

CONSUMER CONFIDENCE GROWS AS HOLIDAYS APPROACH Consumer confidence is back to pre-recession levels and sales have risen in the last three consecutive months, which suggests that spending may continue to grow heading into the holiday season. The Wall Street Journal’s Ben Casselman reports that consumption isn’t quite as strong as September’s 1.1% rise in retail sales suggests and notes that last month’s  boost mainly came from electronics sales, including the release of the iPhone5, as well as  higher gas prices. “But even after taking out both electronics and gas station sales, retail sales were up 0.9%, and July and August’s sales were revised up as well." - Read more in The Wall Street Journal

FISCAL CLIFF IS ‘LOSER TALK’  Kevin Plank, the billionaire founder of Under Armour, a popular athletic clothing company, told the Baron Investment Conference in Manhattan on Friday that his company isn’t sweating the New Year that has other business executives losing sleep at night. Plank called worry over the looming cuts and tax hikes “loser talk” and said, "Today we're not going to talk about fiscal cliffs. We're not going to talk about the negative. We're not going to talk about…all the things we can’t control,” Business Insider’s Julia La Roche reports. - Read more at Business Insider

D.C. REAL ESTATE MARKET: ALREADY BAD While other businesses are bracing for the worst, the commercial real estate business in Washington is already experiencing a terrible downturn.  “It’s as bad as it’s ever been, and sequestration would just turn the knife even more,” according to Joseph Delogu, principal at FD Stonewater, a real estate agency. Bizjournals’ Daniel Sernovitz reports that the federal government has already begun reducing projections for the amount of space its agencies will need in anticipation of massive across-the-board cuts to all government agencies, thus setting back the already struggling office real estate market. - Read more at Bizjournals 

A group of CEOs from BlackRock, Honeywell International, United Parcel Service and Nasdaq joined the chorus of business executives fretting about the looming fiscal cliff. They urged Congress and the Obama administration to set aside politics and negotiate a deal before the end of the year to prevent an economic crisis, during a Bloomberg Television roundtable discussion on Monday. Laurence Fink, CEO of the investment house BlackRock, anticipates that the U.S. economy may shrink in early 2013 due to a slowdown in hiring and spending amid economic uncertainty, Bloomberg’s Thomas Black and Trish Regan reports. - Read more at Bloomberg 

JUVENILE JUSTICE PROGRAMS THREATENED The Department of Justice is anticipating major federal funding cuts if Congress and the Obama administration fail to reach a deficit reduction deal. Included in the DOJ’s projected cuts are $21 million for Juvenile Justice Programs nationwide. This will mean less funding for programs designed to reduce youth gang activity, for mentoring of young people,  and  for after-school programs. The feared cuts would come at a time when the programs are already underfunded and struggling to get by.

“We are kind of bracing ourselves,” said Kimberly Williams, juvenile justice specialist at the North Carolina Governor’s Crime Commission. “Last year we had only about $1.5 million in juvenile justice funding to allocate across the whole state. And we received about $10 million in requests.” That state’s program is anticipating another 7 percent cut under sequestration. - Read more at Juvenile Justice Information Exchange

NORQUIST NUDGES BACK  Grover Norquist, president of Americans for Tax Reform,  on Monday fired back at Alan Simpson and Erskine Bowles, co-chairmen of the presidential fiscal commission, who denounced him last week as a  major impediment to any compromise on deficit reduction and avoiding the fiscal cliff. Simpson charged last week on CNBC, the cable news network, that Norquist’s long-standing crusade to force Republican lawmakers to sign pledges never to raise taxes was a “key stumbling block” to any bipartisan plan that would both cut spending and raise revenues to address the long term deficit. Norquist replied  that  spending cuts—not higher taxes—are   needed to fix the country's fiscal problems. - Read more at CNBC 

Members of New York’s congressional delegation visited Ground Zero in lower Manhattan on Monday to demand that the funds set aside for Sept. 11 terrorist attack victims be spared from the sequestration cuts set to take place in early January. The Hill newspaper’s Erik Wasson reports that $24 million will be cut from the Sept. 11  Victim Compensation Fund, and $14 million would be cut from the World Trade Center Health Fund, set up to help rescuers injured during the attacks on the World Trade Center Towers. - Read more at The Hill

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.