Are fiscal cliff doomsayers overreacting?
While many bemoan the possibility of the America's topple over the fiscal cliff, some major investors say even if Congress doesn't reach a deal by the end of the year, the economic outlook may not be as bad as it seems.
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For example, there could be a long lag, possibly lasting several months, between Jan. 2, when the budgets of government agencies would be cut, and the actual implementation of those cuts to programs ranging from research grants to court room security.Skip to next paragraph
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On the tax side, the Treasury Department and the Internal Revenue Service have flexibility as to when to implement new, higher taxes. And even if higher withholding rates do take effect in January, they could be retroactively reversed later in the year.
In short, what has been dubbed a cliff is more like a fiscal slope that gets steeper as time goes on. How far the U.S. economy slides down it will depend on how quickly lawmakers in Washington take to do a deal.
A lot will depend on whether talks between administration officials and Congressional leaders can remain cordial and appear to be making progress, even if that progress is slow. They got off to what seemed to be a good start on Friday when both Democratic and Republican Congressional leaders came out of a meeting with PresidentBarack Obama talking about the need for a deal, giving a boost to U.S. stock prices.
But some are skeptical. J. Dan Denbow, a fund manager at USAA in San Antonio, Texas, has been watching the value of his precious metals funds tank as fears of a U.S. recession dent the asset class. He thinks Congress will end up going over the cliff and that markets are in for a lot more volatility.
"Everybody's playing nice in the same sandbox," said Denbow of the recent round of cross-party meetings at theWhite House. "But they don't tell you what kind of cat fights they had behind closed doors."
KNIVES POISED, NO ORDERS TO CUT YET