|B) Timeframe and Probability—failure to pass fiscal cliff legislation results in automatic sequestration. Tipping point is now.
Victoria Craig (writer for Fox Business) September 24, 2012 “Fiscal Pitfalls Hinge on Gridlocked Congress” http://www.foxbusiness.com/government/2012/09/20/fiscal-pitfalls-hinge-on-gridlocked-congress/
A fix for the national economy is not as simple as just passing a budget, or reducing government spending. And the risk is potential to seriously destabilize an economy that is already at a tipping point. If more than one credit ratings service decides to downgrade its outlook on the U.S., it not only spells trouble for lawmakers, but financial markets as well. In its report, Moody’s warns what follows multiple downgrades would be a very different scene than when S&P took action. That’s because money-markets funds and other investment tools hold only the highest quality bonds. But the report adds, “Even without any action by the ratings agencies, a failure to make progress toward fiscal sustainability would signal that policymakers will not act until the budget is out of control and the nation is in a serious financial crisis.” Holtz Eakin takes that one step further, describing what the bigger picture would look like in the absence of some kind of Congressional action. “It would be an unambiguously bad event in the financial markets,” Holtz-Eakin said. “We’ve seen turbulence in the past and Main Street’s unimmune. We’d have bad equity market performance, bond yields would go up, credit channels would be depressed. It would send us into another recession.” Still, no matter how you slice it, it seems the future of the economy all comes down to politics.
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