Why 'Fiscal Cliff' May Be Bigger Threat Than You Think

As the deadline for fiscal peril in the U.S. nears, Wall Street is worried that the impact could be much worse than anyone thought—while investors remain nearly oblivious to the danger.

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Looming tax increases and spending cuts — which Federal Reserve Chairman Ben Bernanke has labeled the "fiscal cliff" — would send the economy into a deeper recession than many have predicted, according to economists at Bank of America Merrill Lynch.

At the same time, fund managers the firm surveyed believe investors are far too optimistic that warring Washington factions can get together to take the steps necessary to prevent the economy from going over the cliff—at least temporarily.

Some 72 percent of respondents believe investors have yet to price in the ramifications—a view that is spreading across Wall Street as time winds down for a solution.

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