Tags: Gephardt | budget | cliff | plunge

Gephardt: Fiscal Wrangling Might Spark Stock Plunge

Thursday, 08 Nov 2012 09:36 AM

By Dan Weil

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Intense partisan maneuvering over the budget in Congress could send the stock market reeling, says former House Democratic Majority Leader Dick Gephardt.

“If it looks like that is happening, you could have a couple really bad days on Wall Street,” Gephardt said at a post-election conference. “You could have the markets drop by 1,000 or 2,000 points.”

He was referring, of course, to the Dow Jones Industrial Average, which plummeted 313 points Wednesday, its biggest decline in a year.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

The short-term issue for Congress is the fiscal cliff, which entails $400 billion in tax increases and $200 billion in spending cuts next year if Congress doesn’t act by Dec. 31.

Gephardt expects Congress to kick the can down the road rather than agree to a Grand Bargain over the major budget issues with President Barack Obama.

Given the government’s split, with Republicans maintaining control of the House and Democrats retaining control of the Senate, it’s unlikely an accord can be reached that requires political sacrifice from both sides, said Gephardt, who now runs the lobbying group Gephardt Government Affairs.

Democrats may refuse to reduce domestic spending, while Republicans may threaten to push the country over the cliff.

Others share Gephardt’s caution.

“It’s going to be very messy,” James Dunigan, chief investment officer for PNC Wealth Management, tells Bloomberg. “The wrestling around the fiscal cliff is going to leave a lot of bruises along the way. While I think we’ll get there, the path is not clear.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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