A high up Republican senator has raised hopes that US lawmakers will be able to make a deal over the year-end fiscal cliff and a top aide to President Barrack Obama hinted at willingness to compromise over proposed tax hikes for the rich.
In the United States, the fiscal cliff refers to the effect of a number of laws which if unchanged, could result in tax increases, spending cuts, and a corresponding reduction in the nation’s budget deficit which could significantly reduce economic growth beginning in 2013.These laws include tax increases due to the expiration of the so-called Bush cuts and across-the-board spending cuts under the Budget control act of 2011.The year-over-year changes for fiscal years 2012–2013 include a 19.63% increase in tax revenue and 0.25% reduction in spending.
Republican senator Bob Corker told Fox News; “I am optimistic, I think there is the basis for the deal, there is a way of getting there on the revenue side.”
President Obama began work on creating a deal straight after he won the US Presidential elections last week and has invited congressional leaders to the White House on Friday to hammer out some sort of agreement. He has only 50 days until the end of the year when Congress will implement the first stages of the austerity measures. Up to $600 billion in tax hikes will come into effect and huge reductions to federal spending will be enforced shortly afterwards, with the potential to have a devastating impact on the USA’s economic recovery.
One of Obama’s aides David Axelrod praised the encouraging words emerging from the Republican camp and praised the Speaker of the House of Representatives on his words over the need to tackle the problem.
“Obviously, there is money to be gained by closing some of these loopholes and applying them to deficit reduction. So I think there are a lot of ways to skin this cat, so long as everybody comes with a positive, constructive attitude towards the task.” Axelrod said speaking to CBS.
The positive rhetoric is sure to be seen as a good thing by the markets with economists hoping that the politicians will be able to avert a possible disaster.
Democrat Kent Conrad, chairman of the Senate Budget Committee, voiced optimism that the country would avoid the fiscal cliff, and said Congress must agree on a measure that wins some time to work out a more detailed plan to overhaul the tax code and entitlement programs.
“You can’t settle every detail in these next few weeks. What you can do is agree on a framework agreement that sets out for the (congressional) committees of jurisdiction how much they need to save, how much money needs to be raised,” Conrad said on Fox News.
If the politicians are unable to convincingly tackle the fiscal cliff then the financial markets will become unsettled and the US could be faced with another credit downgrade. If the cliff comes into effect it will put a heavy burden on the nation and could see it sliding back into recession, reversing all of the positives it has achieved over the past few months.
The Dollar will strengthen as a result due to demand for safe haven currencies increasing. The only currency the Dollar is likely to weaken against in such a situation is the Japanese Yen which is also regarded as a safe haven.
The Pound to Euro exchange rate is currently trading at 1.2538
The Pound to US Dollar exchange rate is currently trading at 1.5893
The Pound to Australian Dollar exchange rate is currently trading at 1.5256
The Euro to US Dollar exchange rate is currently trading at 1.2672
The Euro to Pound exchange rate is currently trading at 0.7974
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