One of the great concerns America faces is the oncoming, so-called fiscal cliff: the end-of-year expiration of gigantic government programs that threatens to hack off 3 to 5 percentage points of U.S. GDP.
But believe it or not, this is not the first time we’ve ever faced a fiscal cliff. Morgan Stanley’s David Greenlaw recently wrote about this.
In a recently published chart book, economist David Rosenberg warns about the fiscal cliff based on the last two experiences:
Also if left unchecked, the fiscal squeeze next year in terms of spending cuts and the expiry of all the tax goodies introduced over the past decade will conspire to take roughly four percentage points out of real GDP growth. There have only been two instances in the past when we experienced such fiscal restraint and recessions ensued both times. It pays to note that with the baseline trend in real GDP little better than 1%, even if half of the expected restraint manages to get kicked down the road, the economy will at best stagnate in 2013. That may not be a recession in a technical sense, but it would sure feel like one for a whole bunch of people.
Photo: Gluskin Sheff