Could 'fiscal cliff' push US into recession? Four questions answered
The nonpartisan Congressional Budget Office (CBO) warned in a report Tuesday that if Congress does not deal with a raft of fiscal measures by Dec. 31, the US could enter another recession. So what is this fiscal cliff and what is Congress doing about it?
2. Can Congress dive off the cliff?
If Congress goes on autopilot, some analysts have noted flippantly, America’s debt and deficit problems will largely fix themselves.
While America’s annual budget deficit would be nearly cut in half, the impact on the American economy would be severe.
The CBO estimates that such a course would slash annual growth of the gross-domestic product (GDP) to a measly 0.5 percent. During the first half of 2013, the US economy would likely decline by 1.3 percent, according to the CBO. Once the economy starts tanking – potentially taking consumer confidence and the stock market with it – the rebound the CBO sees in the second half of the year could never come to pass.
By contrast, if Congress simply delays again – putting off the entire package for another year, say, the economy would grow by a robust 4.4 percent in 2013.
That’s roughly the difference between growing nearly as fast as India on the high end versus tipping back into a European-style near-recession on the low end.
So Congress could do a full fiscal belly flop. But it would be harrowing short-term experience.