This fiscal cliff thing is starting to get serious. We’re getting close enough to the year-end deadline without any potential resolution on the horizon that CEOs are starting to plan for the worst. From Reuters:
Some 34 percent of U.S. CEOs plan to cut jobs in the United States over the next six months, up from 20 percent a quarter ago, according to a Business Roundtable survey released on Wednesday. Only 30 percent plan to raise capital spending, compared with 43 percent previously.
The group’s index of CEO confidence fell to its lowest point since the third quarter of 2009, when the United States had just emerged from its worst recession in 80 years.
The main culprit is the fiscal cliff — Washington’s self-imposed year-end deadline to agree on a plan to shrink the federal budget or trigger $600 billion in spending cuts and higher taxes that were put in place last summer.
These precautionary measures companies would be prudently taking in response to the massive fiscal changes ahead would clearly hurt economic growth. What is more, investors may begin to position themselves for the higher capital gains tax rates, as well. And consumers facing larger tax bills will also be forced to cut back should the proposed changes come to pass.
All in all, the mere prospect of the cliff may have the power to precipitate a recession. And a recession that spites the Fed’s best efforts may be just enough to unravel Bernanke’s “confidence game.” At the very least the uncertainty can’t be good for risk assets.