Tags: BofA | Fiscal | Cliff | Economy

BofA CEO Moynihan: Fiscal Cliff Already Hurting the Economy

Tuesday, 13 Nov 2012 10:48 AM

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A combination of scheduled tax hikes and spending cuts due to clobber the economy next year — known widely as a fiscal cliff — is already starting to resonate across the country, said Bank of America CEO Brian Moynihan.

At the end of this year, the Bush-era tax cuts and other benefits are set to expire right at the same time automatic cuts to government spending kick in, a combination known as a fiscal cliff that could send the economy sliding into recession next year if left unchecked by Congress.

Even if lawmakers do steer the economy away from the abyss, fear and uncertainty today are already dampening the country's tepid recovery.

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 

Businesses of all sizes don't know what they are going to be paying in taxes next year. As a result, they are putting off investing in new projects and hiring for now.

Meanwhile, investors are holding off from jumping back into the stock market, as tax hikes due to take effect could boost rates on investment income, namely dividend income and capital gains.

Some economists have said even a compromise that avoids disaster could still weigh on the economy next year.

"The impacts of the fiscal cliff are already being felt," Moynihan told an investor conference, according to Dow Jones Newswires.

"Simply put, our clients tell us they need more clarity before they can invest."

Many market participants have said the fiscal cliff poses such a threat to the U.S. economy that lawmakers realize the gravity of letting politics get in the way of meaningful tax and spending reform and will work out a deal.

Should that happen, expect a rally in U.S. equities markets next year.

"I am very optimistic that while we will have some gyration and pain in the short-run, maybe for the next three-to-six months, we are going to start moving toward an end-game," Ken Kamen, president of Mercadien Asset Management, told CNBC, adding "that is what investors should position for."

Meanwhile, election results did anything but shake up Washington.

The Democrats remained in control of the White House and the Senate and the Republicans in charge of the House.

That's a good thing, Kamen said.

"If we had got an entire change in Washington, we would have spent the next six to eight months litigating what reform should look like, and what we should be doing. In some ways there is a silver lining to the election, because it released the deadlines in getting these types of things done."

Editor's Note: Unthinkable Haunts Investors: Evidence for Imminent 90% Stock Market Drop. 


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