What is the United States “Fiscal Cliff” and why are Canadians Worried About it? This is the question that I'm hearing more and more about from my clients.
Here is the answer in a nutshell :)
The Fiscal Cliff refers to a series of laws (currently in place) which, if unchanged, will result in spending cuts, tax increases, and a significant reduction in the US Deficit commencing on January 1, 2013.
Economists fear that if no alternative and/or amendment is made to these laws prior to the deadline of December 31, 2012, that this “Fiscal Cliff” will result in a sudden drop in the US deficit, which would then in turn, spiral the US into a recession. Of course, our worry here is that Canada would follow suit.
The US deficit is in the billions and something needs to be done in order to lower this deficit. The question here is whether the United States will allow the Fiscal Cliff to take effect and chance a recession, or make amendments to the current laws whereby the Fiscal Cliff is avoided and/or modified resulting in a not so drastic measure to come into force on January 1, 2013.
Prime Minister Harper is urging President Obama to avoid the Fiscal Cliff.
We await to hear the United States’ verdict on this issue. Stay tuned for updates on this topic.