Investment Contrarians

Why the Fiscal Cliff Is Only One Problem Amongst Many

By for Investment Contrarians |

Fiscal CliffThere are 47 days left in the year, and I’m worried. Not about my holiday shopping, albeit the retailers might be, but about whether President Obama can get Congress to agree to his demand to extend the Bush-era tax cuts, while increasing taxes to the rich, cutting expenses, and avoiding a potential financial crisis.

Based on what has happened since the election on November 6, we are seeing a selling bias toward stocks, as there may be a shift to investors taking their profits now; investors are avoiding what will likely be higher taxes on capital gains and investments going forward in 2013 should the fiscal cliff be allowed to follow through without any modification.

We are at a standstill. A financial crisis may be at stake.

The Republican-controlled House wants the tax cuts extended to all taxpayers, while Obama said he would veto any bill that pushes for tax cuts to those earning over $250,000 annually. You can see the dilemma and the difficulty concerning the cliff and potential financial crisis.

Of course, the government needs to be tough and do something to the staggering $16.3 trillion in national debt, or risk deepening the financial crisis.

With every passing second, America is growing poorer, and it will continue to unless major changes are made to avert a financial crisis. At the core of the problem is the direction of the upcoming fiscal cliff and its impact on the economy, national debt, and the financial crisis.

If too much spending is cut, the impact on the fragile economic recovery could be enough to send America back into another recession and financial crisis in 2013.

Let’s just ignore the tax cuts for now and look at where some of the budget cuts will originate from.

Defense will lose a big chunk, especially given the country’s pullout from Iraq. Let’s just hope things in Syria and Iran don’t escalate. Iran is speculated to be testing its missile firing range.

Another area that I can see additional cuts in is “Obamacare” and its roughly $716 billion in cost reduction to Medicare. I expect there will be more cuts to come.

If you are looking at collecting Social Security in your golden years, think again. I believe this area could see heavy cuts, as only those in need of help may have future access to Social Security, which in my view, is not that big of a deal for those who don’t need the help.

We could also see a change in the way federal pensions are allocated and paid for; perhaps the government will pay less into it as a way to cut spending.

The reality is that a resolution needs to be reached regarding the fiscal cliff. Don’t be surprised to see more aggressive spending cuts over the next four years, as President Obama will probably want to leave office with a much lower debt load. There will be unpopular decisions that need to be made to avert a financial crisis, to save the country.

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