Fiscal cliff gives markets economic vertigo

The US fiscal cliff is so-called because it is a scything, indiscriminate sucking of money out of the economy by the government, to pay its bills.

The result say many is USA Inc. will take a massive hit, and lost revenues, wasted investments and costs of massive unemployment will far outweigh the savings on the public purse.

If deficit reduction is the sole aim of Capitol Hill then the cliff does not look so bad, slashing much of the debt at a stroke.

But nearly every economist agrees it would place a huge new strain on the American consumer and the wider economy when recovery appears so fragile, and strangling growth will do nothing to pay the bills long-term. Better to have more people working paying tax than wring more out of those clinging to jobs, say many.

But that is what the cliff will do, and the double whammy to go with tax rises is public spending cuts. Together they are forecast to contract economic growth by half a percent next year, and add another percent to the unemployment rate.

More and more companies sensing disaster in just five days time are trying to get things moving. Starbuck’s 120 stores in Washington are urging customers to write “Come Together” on their cups to encourage the Democrats and Republicans to settle their differences.

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