Will The Looming Fiscal Cliff Send America Back Into An Economic Recession?

With 600 billion US dollars worth of taxes and spending cuts at steak, can newly reelected President Obama reach across the partisan divide to avoid a looming economic disaster?

By: Ringo Bones

With reelection results revealing a now highly politically polarized America, solving the looming Fiscal Cliff by reaching across the partisan divide between Democrats and Republicans could well be newly reelected U.S. President Barack Obama’s greatest challenge for his second term. After all, he only has less than two months to reach a “bipartisan” consensus with the Republican controlled Capitol Hill before the January 1, 2013 deadline. Given that executive powers seep very quickly away during the first year of every reelected US president, can President Obama act in time to avoid the U.S. economy from careening into the deep chasm of the looming Fiscal Cliff?

Even just after a few days of President Obama’s reelection, Wall Street already got spooked that he may not be able to reach a bipartisan compromise with the Republican controlled congress before the January 2013 deadline. The DOW retreated back to levels unseen since July 2012 – losing gains made since then. The U.S. government budget’s 2013 Fiscal Cliff – also known as The U.S. Fiscal Cliff – refers to the effect of a series of enacted legislation, which if left unchanged, will result in automatic tax increases, spending cuts and a corresponding reduction in the budget deficit. These laws include tax increases due to the expiration of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 – not to mention the spending reductions / sequestrations under the Budget Control Act of 2011.

Given that leading credit rating agencies already threaten to reduce America’s Triple-A credit rating if President Obama can’t reach a compromise with Republicans controlling Capitol Hill to avert the looming Fiscal Cliff, it could well be the greatest challenge of the president’s second term in office – both economically and politically. President Obama and the rest of the Democrats will only reach a compromise with the Republicans only if there are corresponding tax increases to the top 1 percent who control over 90 percent of America’s wealth. Sadly, Republican’s are always abhorrent about taxing the richest 1 percent given that it could ruin the private sector’s job creation potential for 2013. But if both parties can’t agree to formulate a solution to solve the looming Fiscal Cliff, the U.S. unemployment rate could rose back to 9 percent or higher and America would be plunged back to an economic recession that could be deeper that the one back in 2008.     

Much Ado About America’s Jobless Recovery

With the DOW Industrial Average now hovering around the 11,000-point mark with the unemployment rate approaching 10%, is the American economy currently experiencing a jobless recovery?


By: Ringo Bones


The DOW Industrial Average is now “safely” entrenched in the 11,000-point mark and yet the current jobless rate in the U.S. has now crept closer to 10% - comparable to the record unemployment rate spikes of the past 30 years. And yet, there are obvious signs that America’s economic health had already recovered since the 2008 global credit crunch – like the slowly creeping price rise of crude oil and other indicators. Given the current economic data, is the U.S. now currently experiencing a jobless economic recovery?

In an October 22, 2010 interview on the Bloomberg channel, Professor Alan Blinder of Princeton University says that basing on current economic data America won’t be experiencing a long-term jobless economic recovery because America’s current jobless rate is a cyclical jobless rate as opposed to a structural jobless rate. That is, America’s current jobless rate – being cyclical in nature – could easily go down once the economy improves, as opposed in a structural jobless rate where the unemployment rate stays at a fixed rate – and at a rather high percentage rate – even if the economy improves.

Most U.S. economists – including Professor Blinder – safely concludes that the current U.S. unemployment data is overwhelmingly cyclical, as opposed to structural, and could return to the previous natural unemployment rate of slightly below 5% once the U.S. economy further improves. Which could spells further good news for the U.S. economy since 70% of the U.S. GDP is due to retail purchases.

But what if the unemployment problem in the U.S. turns out to be a markedly structural jobless rate rather than a cyclical jobless rate? Well, given that the economic nerve centers in the U.S. are now computerized and largely robotic, America could well experience a true jobless recovery with a structural unemployment rate framing the backdrop of an economic prosperity with a 10% or more jobless rate.

Worse still, in an economic climate marked by structural jobless rates, the U.S. economy might become too dependent on the markedly dubious wealth manipulation industry in the murky world of investment banking. Like superfast high-frequency trading which – from time to time – is still prone to market meltdown and market crashes like the recent one that happened back in May 6, 2010.