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Reapproaching the Fiscal Cliff

In the wake of the election, Washington seems likely to steer clear of the worst of the spending cuts and tax hikes, says Lord Abbett's Milton Ezrati.

By Milton Ezrati | Updated on November 13, 2012

Milton Ezrati of Lord AbbettNow that the political lines for the next couple of years are clear, the so-called fiscal cliff stands first on the agenda for President Obama and the existing Congress. The matter is urgent. Unless something is done between now and year-end, some $660 billion in automatic spending cuts and tax hikes will almost certainly toss the economy into recession.

Avoiding it probably would have been easier with a Romney victory. By giving Congress an excuse to wait for the new administration to work out its budget, Romney would have offered both sides of the aisle a way to sidestep this difficult issue. But with Obama’s reelection, the effort to avoid the cliff now requires hard negotiations. The next few weeks doubtless will see a lot of give-and-take and even with the initial spirit of compromise, recriminations, too. Because neither side can concede until the last minute, it’s likely that little will become clear until late December.  But it’s nonetheless likely that in the end, Washington will steer clear of the cliff, or most of it, offering a kind of last-minute holiday gift to the economy and markets.

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