Brace Yourself for a Cliff Landing

Reports that House Republicans have all but dropped out of fiscal cliff negotiations are obviously driving market moves this morning. How exactly will this play out? Your guess is as good as mine. But one thing we can say with more certainty is that there will be material fiscal consolidation in 2013, from either tax hikes or spending cuts, or both. So rather than try to predict the eventual outcome of these negotiations, I am focusing my analysis on how changes in taxes and spending will affect the actual economy.

Unfortunately, there is a lot of rhetoric (or perhaps zealotry is a better term) around these issues. Indeed, it is this zealotry that is impeding the U.S.' ability to deal with our government debt problem. And to be fair, the academic research on the relationships between taxes, government spending and private-sector activity is all over the board. But if you are willing to put your own philosophical preferences aside, there are a few conclusions one can draw....971 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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