Tags: Freeman | fiscal | cliff | deal

Wells Fargo’s Freeman: Markets Would Applaud Quick Fiscal Cliff Deal, Won’t Get It

Tuesday, 13 Nov 2012 08:04 AM

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Markets would rally if Congress quickly prevented tax hikes and spending cuts from striking the economy at the close of this year with a crushing blow, though a quick fix is wishful thinking, said Stuart Freeman, chief U.S. equity strategist with Wells Fargo Advisors.

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

Some estimates see the combination of tax hikes and spending cuts siphoning over $600 billion out of the economy next year alone, which has markets on edge.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

Taxes serve as one hurdle, with Democrats clamoring for allowing the tax breaks to expire for wealthier Americans, with some Republicans countering that such a move would crimp job creation, as many who would be hit with tax hikes are small business owners.

Expect brinkmanship and agonizing uncertainty.

“We’re going to have a lot of uncertainty about this, whether they’re going to push out the cliff or come together quickly and talk about some type of longer-term scheme that looks like it’s dealing with the debt and deficits,” Freeman told CNBC.

“If that happened, of course the market would love that. But I’d assume we’ll see some brinkmanship here. No one wants to crater first.”

The seeds of the fiscal cliff were planted in August 2011, when lawmakers agreed at the last minute to raise the government’s debt ceiling, narrowly avoiding default although the Standard & Poor’s credit ratings agency did strip the United States of its coveted AAA rating.

Terms surrounding that deal required a group of lawmakers to find a way to cut spending in an effort to narrow deficits, which included a measure calling for automatic spending cuts should the group fail to agree on ways to slash spending. That turned out to be the case.

Lawmakers this time around are striking conciliatory tones.

“We need to put politics aside. The election is over. President Obama has won,” Sen. Saxby Chambliss, R-Ga., said on ABC’s “This Week.”

Other expected compromise on taxes and hoped for similar accords on spending as well.

“I am optimistic,” Sen. Bob Corker, R-Tenn., told Fox News Sunday.

“There is a way of getting there on the revenue side. The real question is can we come to terms on the entitlement side.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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