Fiscal And Political Chemotherapy Before Markets Can Move Ahead

Chemotherapy is a treatment that uses a mixture of toxic drugs designed to destroy cancer cells, so patients can recover to a healthy state. Similarly, our government system combines a mixture of toxic politicians designed to destroy our nation’s problems, so Americans can benefit from a healthy, expanding economy. In the long run, history teaches us that despite painful periods of political battles, beneficial results are eventually achieved.

Unfortunately, in the short run, political side effects relating to our country’s legislative process can result in extremely unpleasant outcomes, just like experienced during chemotherapy treatment (including nausea, vomiting, hair loss, and fatigue). Politically, we are going through a comparably repulsive period. The good news is, regardless of your political persuasion, a major source of contention is now behind us in the rearview mirror (i.e., the presidential elections) and we can temporarily recover from the barrage of venomous super PAC commercials that have temporarily halted.

Regrettably, the looming “Fiscal Cliff” poses larger consequences than election outcomes, if these out-of-control economic issues are not credibly resolved. Most Americans realize a responsible mixture of real spending cuts coupled with limited tax cuts, like proposed by the bipartisan Simpson-Bowles commission is a great starting blueprint to hammer out a deal.

For the time being, I’m happy to hear both Republicans and Democrats are playing nicely in the sandbox. Republican Speaker of the House, John Boehner has signaled he is willing “to put (tax) revenue on the table” and President Obama has said he is “open to compromise.” So what’s all the worry then? We already know that $600 billion in tax increases and spending cuts kick in seven weeks from now, which has the real potential of spinning our economy into another recession if Congress doesn’t act.

You don’t need to go far back in history to see what the effects could be from continued gridlock or a lackluster agreement that kicks the can down the curb. For starters, last year’s initially unsuccessful debt ceiling negotiations resulted in a swift kick in the pants for stocks, as investors watched the S&P 500 index crater -18% within three short weeks. If the $600 billion impact of the Fiscal Cliff and sequestration actually occur, many pundits are predicting up to a -4% hit to GDP (Gross Domestic Product), which makes it virtually certain the economy will slip back into recession.

This game of political chicken can last only for so long. Congressional approval Contact page .

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Written By: Wade Slome