MORGAN STANLEY: The Solution To The Fiscal Cliff Will Be Another Fiscal Cliff

washington dc aerial shot

Photo: Wikimedia Commons

In his latest US Macro Dashboard note, Morgan Stanley Chief Economist Vincent Reinhart nicely states the insane nature of policymaking in America right now.As for substance, the sequence most talked about is patch and promise, followed by a plan.  The patch would be stop-gap legislation extending most features of the current system accompanied by the promise of significant 10-year budget reduction legislated by a certain date later in 2013.  In that regard, politicians’ solution to the 2012 fiscal cliff will be to create another one in 2013.  Thus, only a portion of the uncertainty about policy will be resolved by the patch and promise, as much could go wrong with the plan.

Of course, the existence of the 2012 cliff is a hangover from the 2011 debt ceiling negotiations, and the 2010 Bush tax cut expiration negotiations.

Rather than just set anything at a certain level, and move on, Washington’s Modus Operando is, set up something subpar, with a timebomb at the end.

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