Former Obama Adviser Bernstein: US Can’t Avoid Falling Off ‘Fiscal Cliff’
The U.S. economy won’t avoid falling over the edge of a fast-approaching fiscal cliff, when tax breaks expire at the same time automatic spending cuts kick in at the end of the year, says Jared Bernstein, a former adviser to President Barack Obama.
The outcome of the November presidential elections won't make any difference at all, Bernstein adds.
"If you actually play out the difference scenarios here, the president wins, Romney wins — it’s hard to see that we don’t go off this fiscal cliff," Bernstein tells CNBC. "Because I don’t see how this compromise gets made."
Fortunately for the country, once the economy goes over the edge, the nation's political leaders will fix it at once, meaning the nation won't likely plunge into any sort of economic abyss.
The White House can work with lawmakers to extend the timing of the oncoming fiscal adjustments.
"If we can reverse it in a matter of two or three weeks — and there is a scenario in which that can happen — that would do a lot less damage to the economy than if we stayed over the cliff," Bernstein says.
The Congressional Budget Office, multilateral organizations such as the Paris-based Organization for Economic Cooperation and Development and private financial institutions have said failure to deal with the fiscal cliff will derail recovery and possibly send the country back into recession.
Standard & Poor's, the ratings agency that downgraded the U.S. in 2011 over its inability to raise its debt ceiling due to political brinkmanship, has said the severity of the fiscal cliff is so great that politicians will likely put their differences aside and quickly find a way to avoid the retrenchment.
"One thing we do expect Republicans and Democrats to agree on — given an unemployment rate of about 8 percent and continued risks to the U.S. economic recovery — is avoiding sudden fiscal adjustment," the ratings agency says in a recent statement.
"We expect that a sudden fiscal adjustment could occur if all current tax and spending provisions, set to either expire or take effect near the end of 2012, go forward in accordance with current law."
The ratings agency has assigned the U.S. with a AA-plus long-term rating with a negative outlook thanks to political finger-pointing that often delays key decision-making.
A negative outlook means more downgrades are possible.