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November 30, 2012 at 07:00 PM
Are we about to fall off the fiscal cliff? We’ve certainly heard a lot of chatter about it lately. I decided to check it out by talking with financial expert Reto Gallati (in late October before the election was decided). Gallati envisions four possible scenarios that could play out in the coming months.
Gallati, formerly the chief risk officer and head of investments at Nuveen Investments, notes that “the pending expiration of the Bush Tax Cuts and the sequestration process represents a doomsday scenario which can only be averted through significant efforts by Congress to reach a compromise solution during the lame duck session of Congress before new leadership (or a new Obama tenure) takes place in January 2013.”
In our phone conversation, Gallati, who hails from Switzerland and is more attuned to a European attitude toward compromise, says that in the United States: “we stand at the foothill of the cliff, which in our case it is Capitol Hill. If we want to avoid what could be an extremely dire economic outcome, America needs our elected officials to demonstrate leadership. Without significant movement soon, our economy teeters at the edge of the precipice, poised to fall over the cliff if politicians in Washington fail to find a timely agreement.”
Gallati says that he sees one of four scenarios that could occur:
1) Congress and the President could agree to punt the issue into 2013 by signing a temporary measure allowing the tax cuts to remain in effect for a temporary period. Tax increases would be averted and the spending cuts could be delayed until after the inauguration and a new Congress is elected in 2013.
