By Morgan Korn
Daily Ticker
Yahoo.com
In late February Fed Chairman Ben Bernanke started warning lawmakers about the looming “massive fiscal cliff” that would bring the U.S. economy to its knees if Congress cannot agree on long-term fiscal decisions. Bernanke explained that the confluence of events happening Jan. 1, 2013 – the expiration of the Bush-era tax cuts and extended unemployment benefits, the $1.2 trillion automatic spending reductions and the end of the payroll tax holiday — will likely lead to a recession in the U.S.
Neither political party wants this worst-case scenario to come to fruition but lawmakers are likely to “kick the can down the road” instead of addressing these pressing policy issues before the November elections says Greg Valliere, chief political strategist at Potomac Research Group. Bernanke reiterated his concerns to a select group of lawmakers last week, escalating his rhetoric about the necessity of resolving these budget concerns sooner rather than later.
“I think [Bernanke] is worried, and people at the Fed are worried because this is such a dysfunctional group,” says Valliere in the accompanying video. “And there’s talk now of a government shutdown on Oct. 1 when the new fiscal year starts.”
Bernanke’s admonition was not lost on the senators who attended the vis-à-vis encounter. Bernanke probably told lawmakers “you guys got to get your act together because if we do nothing in December…the impact on GDP will be so adverse it will probably lead to a recession,” Valliere says.
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