Three Ways Washington Poses a Risk to Recovery in 2013

Here’s another good story from the Washington Post on the various ways the recovery could be at risk in 2013 (see the 3 upside surprises to the economy here).  Interestingly, the big risks they list all come from our own government:

These are the three major ways Washington could bungle the recovery.

Going off the cliff. This is the most scrutinized possibility, the one that has been widely analyzed (and, as of Thursday morning, at least, seemed like a growing possibility).

A deal with too much austerity, too fast. Going off the fiscal cliff is probably not even the likeliest risk (though the odds are changing all the time). Another risk is that while there is a deal to avert the entirety of the cliff, it is a deal that calls for enough austerity in 2013 to seriously undermine the nation’s economic prospects.

Debt ceiling hijinks. If the nation goes over the fiscal cliff, the results would be bad, but not catastrophic; we’ve had recessions before, we’ll have them again. But in late February or early March comes a deadline with even more at stake: The legally mandated cap on how much debt the Treasury can issue will become a binding constraint, setting the stage for the same messy negotiations that walloped financial markets and business confidence in the summer of 2011.

Read the full article here.

-------------------------------------------------------------------------------------------------------------------

Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:
TwitterLinkedIn

Comments

  1. One question I keep having: why do most (all?) politicians not understand even the basics of their own monetary system? If it’s not too difficult to understand even for me as an interested person withouth any formal economic training, why is it that they don’t? Why doesn’t Bernanke explain it to Congress?

  2. Because he has shown he doesnt have a full grip himself..!

    Anyway if the idiots had a clue it would be harder for us to make a buck off them :)

  3. What about the shenanigan going on in Washington?

    I believe the markets know. They know we have to pay the piper. We have to pay for all the grandiose projects we have put in place in the past 60 years by going into debt in a big way. The process is called, in financial jargon, “deleveraging”. Slowly and steadily much of the needed things we liked, but we cannot afford, will be taken away from us.

    Those with the right connections in Washington will keep more “goodies” than others. The sad ending is that income differential will continue to increase. I have seen this process in Europe. And the depressing part of the story is that the little guys are going to pay. Exactly those people the social safety network was supposed to help. Why? Because this is how the game has always been played since day one.