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How Fiscal Cliff Shapes Up After Election

The fiscal cliff is a reality that will take on different shapes with the outcome of the U.S. election.

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The fiscal cliff looms large. It should. Unless Washington does something, 2013 will face a sudden and automatic fiscal restraint. The shock would almost certainly drive this economy’s already enfeebled recovery into recession. It is a frightening prospect, to be sure, but, still, likelihoods suggest that even this Congress will steer clear such a cliff.

Warnings on this matter have emerged through several channels. Federal Reserve Board Chairman Ben Bernanke, at last summer’s testimony on monetary policy, forcefully called Congress’ attention to the impending problems and, incidentally, coined the phrase “fiscal cliff.” The Congressional Budget Office (CBO) followed up with a full analysis, concluding that, if something is not done, restrictive automatic fiscal measures in 2013 could exceed $800 billion and force this economy into at least two quarters of decline. And though there is always room to cavil, surely the CBO’s analysis and conclusions are reasonable. Severe problems are built into law on both the spending and on the revenue sides of the federal budget.

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