Going Over the Fiscal Cliff Could Spark Another Recession
Posted at 12:45 p.m. on Nov. 12, 2012
“Between the higher taxes and lower spending, more than $600 billion would come out of the economy in 2013 if the fiscal cliff were breached for the entire year. While there are differing estimates, the consensus is that economic growth would decline 3 percentage to 4 percentage points. When you have an economy growing by only 2 percent, that reduction in growth would push us back into recession,” according to the Philadelphia Inquirer.
“The problem with falling into another recession is that there are no policies left to stimulate the economy. The Federal Reserve is out of bullets, and fiscal policy is restrictive. It is hard to cut interest rates when they already are at zero percent… Once growth resumes, we would be in better fiscal shape and have the potential to grow even faster. That is the source of the argument that says we would have some short-term pain with some long-term gain. Of course, we would also have a lot higher taxes and less spending.”