A quick paragraph from Citi’s Steven Wieting which we found amusing, the gist of which is basically: The fiscal cliff coming in 2012 is so big, it’s good, because it will have to get fixed.
The size of the so-called fiscal cliff at year end, which would unwind a decade’s worth of tax cuts and temporary income supports, is so “ridiculously” large relative to near- term growth prospects that markets may take some comfort in its scale. As Fed Chairman Bernanke warned Congress, the Fed would have “no chance” of offsetting an instantaneous shock so severe and noted he was “hoping” Congress would take action.
Wieting goes on…
the combined size of the year-end fiscal cliff implied in current law seems so flatly ridiculous relative to near-term growth prospects, that markets may in fact be feeling some calm that the resolve to once again delay and diffuse it will be found. In late 2010, figure 1 looked substantially the same before fiscal tightening pains were delayed to the period beyond the November 2012 elections. Since then, the size of the cliff grew with prospective spending cuts. Yet some doubt should remain, and we gather build at some point as to whether Congress and the President will be too divided to find an alternative to current law, particularly before the year is out and the new Congress is seated.
Hre are the two charts showing the ridiculous changes in tax receipts and federal consumption.
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