US edges closer to the 'Fiscal Cliff'.

[anonymous-user]

The latest attempt to avert the issue ends in failure:

http://www.bbc.co.uk/news/world-us-canada-20797537

I won't pretend to fully understand all the economics behind this, but some analysts are saying it may throw the US into a much deeper recession if a deal isn't struck very soon?

[P-Jay]

NinjaPower said:

The latest attempt to avert the issue ends in failure:

http://www.bbc.co.uk/news/world-us-canada-20797537

I won't pretend to fully understand all the economics behind this, but some analysts are saying it may throw the US into a much deeper recession if a deal isn't struck very soon?

My understanding is that tax & spending laws in the US all have a 'sell by date' and will automatically end if not renewed or replaced. If nothing is done by the deadline there will be a perfect storm of the tax cuts brought in Bush ending at the same time as massive spending cuts agreed last year coming into play.

Whether this is a good thing or a bad thing depends on your side of the fence, some say this level of austerity is good, the shift is huge is basically increases tax revenue by 20% and reduces spending by .25% and would mean an immediate reduction in National Debt rather than a slowing the in rate of increase we have here in the UK.

Others say it will cause a huge recession and set back the US to the point right at the start of the crash and ultimately the increased unemployment and other recession symptoms will actually reduce tax income in the medium term. Even the Republicans who favour it are saying it will cause a 'mild' recession.

It's hugely important to the UK and the rest of the world for 2 reasons, firstly the US is currently growing at about 3%, their 'great recession' is over and they're driving the recovery, and as ever, whatever happens there will drive our economy. Secondly it lays right in the heart of the argument for spending or cutting your way to recovery.

[Art0ir]

P-Jay said:

NinjaPower said:

The latest attempt to avert the issue ends in failure:

http://www.bbc.co.uk/news/world-us-canada-20797537

I won't pretend to fully understand all the economics behind this, but some analysts are saying it may throw the US into a much deeper recession if a deal isn't struck very soon?

My understanding is that tax & spending laws in the US all have a 'sell by date' and will automatically end if not renewed or replaced. If nothing is done by the deadline there will be a perfect storm of the tax cuts brought in Bush ending at the same time as massive spending cuts agreed last year coming into play.

Whether this is a good thing or a bad thing depends on your side of the fence, some say this level of austerity is good, the shift is huge is basically increases tax revenue by 20% and reduces spending by .25% and would mean an immediate reduction in National Debt rather than a slowing the in rate of increase we have here in the UK.

Others say it will cause a huge recession and set back the US to the point right at the start of the crash and ultimately the increased unemployment and other recession symptoms will actually reduce tax income in the medium term. Even the Republicans who favour it are saying it will cause a 'mild' recession.

It's hugely important to the UK and the rest of the world for 2 reasons, firstly the US is currently growing at about 3%, their 'great recession' is over and they're driving the recovery, and as ever, whatever happens there will drive our economy. Secondly it lays right in the heart of the argument for spending or cutting your way to recovery.

Is recession such a bad thing if the past few years were built on the back of a credit card? Should I avoid personal recession and ignore my loan repayments so as not to affect my disposable income? Or should I clear my debts and be a little more frugal with my money until they're paid off in order to secure my future?

[sidicks]

Art0ir said:

Is recession such a bad thing if the past few years were built on the back of a credit card? Should I avoid personal recession and ignore my loan repayments so as not to affect my disposable income? Or should I clear my debts and be a little more frugal with my money until they're paid off in order to secure my future?

Exactly, whilst the US economy is current showing positive growth (better than the UK), that's primarily because they haven't tried to address their big issues yet. At least in the UK we have started to make a token gesture towards a more balanced economy.

[P-Jay]

Art0ir said:

Is recession such a bad thing if the past few years were built on the back of a credit card? Should I avoid personal recession and ignore my loan repayments so as not to affect my disposable income? Or should I clear my debts and be a little more frugal with my money until they're paid off in order to secure my future?

It's difficult to equate individual finances with national finances as, by and large we can't increase our income by increasing borrowing. but for an alternative view.

Take an individual who ether by bad life choices or external forces finds themselves 'underemployed' they've gone from a nice full-time job to working part-time in Tesco and they owe £5k on a credit card, would you expect them to put every penny they earn into paying down the credit card to a level that befits their new income level so they can continue to borrow it a prime rates, or pay the minimum and spend whats left on a new suit and travel to job interviews with view to paying off the credit card when their new income makes it a smaller proportion of their income?

[Art0ir]

P-Jay said:

Art0ir said:

Is recession such a bad thing if the past few years were built on the back of a credit card? Should I avoid personal recession and ignore my loan repayments so as not to affect my disposable income? Or should I clear my debts and be a little more frugal with my money until they're paid off in order to secure my future?

It's difficult to equate individual finances with national finances as, by and large we can't increase our income by increasing borrowing. but for an alternative view.

Take an individual who ether by bad life choices or external forces finds themselves 'underemployed' they've gone from a nice full-time job to working part-time in Tesco and they owe £5k on a credit card, would you expect them to put every penny they earn into paying down the credit card to a level that befits their new income level so they can continue to borrow it a prime rates, or pay the minimum and spend whats left on a new suit and travel to job interviews with view to paying off the credit card when their new income makes it a smaller proportion of their income?

That would be all well and good if the States were showing in any meaningful way that they could overcome the debt with growth.

Gone are the 50's and 60's were they could rapidly expand the economy at extraordinary levels. Population growth and productivity is slowing in the US and they have $16 Trillion worth of debt to overcome, one way or another. If future liabilities are taken into account, you're talking over $200 Trillion depending on who you listen to.

Edit: The booming shale industry may turn out to be their saving grace, but if there is a recovery it'll be down to luck and circumstance and certainly won't be permanent as the core issues will still remain.

Edited by Art0ir on Friday 21st December 12:11

[BoRED S2upid]

Sounds like its about time the US faced reality cliff or no cliff they can't put it off forever.

[Digga]

To the fiscal cliff edge, you can also effectively add France too. There has been scant little done there since the GFC in terms of austerity or reform either. Both appear, on first glance, to have had softer landings than the UK but in fact have merely deferred their st and, potentially in the process, have gambled on an outcome which may in fact be worse overall.

[P-Jay]

Art0ir said:

P-Jay said:

Art0ir said:

Is recession such a bad thing if the past few years were built on the back of a credit card? Should I avoid personal recession and ignore my loan repayments so as not to affect my disposable income? Or should I clear my debts and be a little more frugal with my money until they're paid off in order to secure my future?

It's difficult to equate individual finances with national finances as, by and large we can't increase our income by increasing borrowing. but for an alternative view.

Take an individual who ether by bad life choices or external forces finds themselves 'underemployed' they've gone from a nice full-time job to working part-time in Tesco and they owe £5k on a credit card, would you expect them to put every penny they earn into paying down the credit card to a level that befits their new income level so they can continue to borrow it a prime rates, or pay the minimum and spend whats left on a new suit and travel to job interviews with view to paying off the credit card when their new income makes it a smaller proportion of their income?

That would be all well and good if the States were showing in any meaningful way that they could overcome the debt with growth.

Gone are the 50's and 60's were they could rapidly expand the economy at extraordinary levels. Population growth and productivity is slowing in the US and they have $16 Trillion worth of debt to overcome, one way or another. If future liabilities are taken into account, you're talking over $200 Trillion depending on who you listen to.

No doubt the US has a huge debt problems, although their culture is based around debt.

The recession has been a great eye openner for most of the western world in regards to national debt, the argument is not whether to tackle it, but how and more importantly when.

In the gread scheme of things a year isn't going to matter too much, nor will 3, but cutting now when the world economy is so delicate will make a huge difference. Spend now and with a bit of a boom from somewhere (Shale Gas probably) the US could be on a sound footing next year and could absorb cuts and milder tax increases from increased number of tax payers. Cut too much now and the US could sink into another 5 years of recession and emerge in a worse position.

[Art0ir]

P-Jay said:

Art0ir said:

P-Jay said:

Art0ir said:

Is recession such a bad thing if the past few years were built on the back of a credit card? Should I avoid personal recession and ignore my loan repayments so as not to affect my disposable income? Or should I clear my debts and be a little more frugal with my money until they're paid off in order to secure my future?

It's difficult to equate individual finances with national finances as, by and large we can't increase our income by increasing borrowing. but for an alternative view.

Take an individual who ether by bad life choices or external forces finds themselves 'underemployed' they've gone from a nice full-time job to working part-time in Tesco and they owe £5k on a credit card, would you expect them to put every penny they earn into paying down the credit card to a level that befits their new income level so they can continue to borrow it a prime rates, or pay the minimum and spend whats left on a new suit and travel to job interviews with view to paying off the credit card when their new income makes it a smaller proportion of their income?

That would be all well and good if the States were showing in any meaningful way that they could overcome the debt with growth.

Gone are the 50's and 60's were they could rapidly expand the economy at extraordinary levels. Population growth and productivity is slowing in the US and they have $16 Trillion worth of debt to overcome, one way or another. If future liabilities are taken into account, you're talking over $200 Trillion depending on who you listen to.

No doubt the US has a huge debt problems, although their culture is based around debt.

The recession has been a great eye openner for most of the western world in regards to national debt, the argument is not whether to tackle it, but how and more importantly when.

In the gread scheme of things a year isn't going to matter too much, nor will 3, but cutting now when the world economy is so delicate will make a huge difference. Spend now and with a bit of a boom from somewhere (Shale Gas probably) the US could be on a sound footing next year and could absorb cuts and milder tax increases from increased number of tax payers. Cut too much now and the US could sink into another 5 years of recession and emerge in a worse position.

I agree, and you have a point on the shale possibilities as I mentioned in my edit.