Fiscal Brinkmanship Is the Real US Threat

Is America going to plunge off a fiscal cliff? That is the question starting to preoccupy Washington and Wall Street. For as fiscal issues move to centre stage in the 2012 election, America potentially faces three nasty shocks.

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On January 1 2013, the Bush-era tax cuts are slated to expire, just as automatic fiscal tightening measures, agreed last year, kick in. That equates to about $400 billion in tax increases and almost $200 billion in spending cuts, more than 4 percent of gross domestic product. If that was not bad enough, in early 2013 America will also hit the $16.4 trillion debt ceiling, which means the Treasury cannot issue more bonds unless Congress raises that limit.

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