Last summer, as part of its agreement to end the debt-ceilingdebate (debacle?), Congress strapped a bomb to the economy and set the timer for January 2013. Into it theypacked billions of dollars of mandatory discretionary spendingcuts, timed to go off at exactly the same time a number of tax cutswere set to expire. The congressional deficit supercommittee had a chance to disarm thebomb last fall, but of course it didn t. And so the timer has keptticking. The resulting double-whammy explosion of spending cuts andtax increases will likely send the economy careening off a $600billion fiscal cliff. How bad will the damage be? The folks over at Goldman Sachs ( GS ) have crunched the numbers, running the equivalent of an economiccrash test, and it looks grim. If Congress does nothing, the U.S.will almost certainly go into recession early next year, as thecombo of spending cuts and tax hikes will wipe out nearly 4percentage points of economic growth in the first half of 2013,according to research by Goldman s Alec Phillips, a politicalanalyst and economist. Since most estimates project the economywill grow only about 3 percent next year, that puts the U.S.solidly in the red. As if that s not depressing enough, Phillips places the odds ofthis happening that is, Congress doing nothing (at leasttemporarily) at 35 percent. A happier outcome, which Goldmanrefers to as its base case, plays out like this: Congress extendsthe 2001 and 2003 Bush-era tax cuts and also delays most of thespending cuts past 2013. Unemployment benefits, set to expire atthe end of this year, are phased down rather than fully expiring atthe end of 2012. Phillips predicts a 20 percent to 40 percentchance of something like this happening, depending on the length oftime Congress chooses to extend things. Still, that scenario would drag down growth by about 1 percentagepoint. The best-case scenario, that Congress reaches a grandbargain of sorts plugging tax-code loopholes and addressing thelong-term deficit with spending cuts and new tax revenue appearsthe least likely outcome. Phillips puts the odds of Congressstriking such a deal at just 5 percent. This whole exercise revolves around the wrestling match betweenreducing the debt and boosting the economy, two things that appearto be mutually exclusive these days. The argument being made bythose calling for significant spending cuts, and therebysignificant debt reduction, is that sooner or later the world scapital markets will punish the U.S. for its profligate ways byraising the cost of borrowing. This is what s happening in Spain right now . The irony here is that, as far as the U.S. is concerned, theevidence doesn t bear that out. Granted, we have only a samplesize to go on, but last summer after Standard & Poor s downgraded the U.S. credit rating for the first time ever, the immediateresult was that Treasury rates fell to near record lows. The U.S.already has among the cheapest borrowing costs in the world. Willreducing our debt really lower them that much more? Not likely,especially if it derails the tepid recovery. The e-commerce company in China offers quality products such as Glass Sun Rooms Manufacturer , China Aluminum Tilt And Turn Windows, and more. For more , please visit Frameless Folding Windows today!
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