Fiscal cliff? Not gonna happen

Dec 2, 2012 @ 12:01 am

As I write this column, we are 32 days, 9 hours, 11 minutes and 12 seconds away from plunging over the fiscal cliff.

I know this because MarketWatch, which runs in the background on my desktop, has a Countdown to Fiscal Cliff clock on its website. Lest anyone confuse the upcoming financial apocalypse with the end of the world, the latter is slated to occur Dec. 21 — if you believe the Mayans.

Meanwhile, on the TV near my desk in our newsroom, a news ticker running along the bottom of the screen proclaims that “financial Armageddon” is imminent.

Jeez, if I didn't know better, I would say that now is a good time to cancel my life insurance and read the last page of every unfinished mystery novel in the stack beside my bed.

Truth be told, I am really not that concerned about the fiscal cliff. When all is said and done, I suspect that it will prove to be little more than an economic boogeyman.

It will go down in history as another Y2K.

That isn't to say that financial advisers should dismiss their concerns and those of their clients about the ramifications of going over the cliff. Those ramifications are real and quite horrifying.

I just don't think it is going to happen.

First and foremost, it is in the best interest of every politician, including President Barack Obama, to seal a deal.

Like all second-term presidents, he is focused on history. Mr. Obama wants to leave office with the country in better shape than when he took over.

He wants to leave a legacy that his daughters, Malia and Sasha, can be proud of. Standing in the way of a compromise, and inflicting tragic economic consequences (including a possible recession) on the people who just re-elected him, is anything but legacy-building.

Also, let's not forget that in 2014, all 435 members of the House of Representatives will be up for re-election. One-third of the Senate, 33 members, also will face re-election that year.

Trust me: They are keenly aware that the chances of keeping their seats won't be good if they stand by and do nothing while automatic tax hikes and spending cuts eviscerate the already-feeble financial security of their constituents.

If the threat of not being re-elected isn't enough to steer most politicians toward a compromise — and I believe wholeheartedly that it is — then consider this: With the exception of a few wackos, most politicians are smart, reasonable people. At their core, they are patriots who know full well that America's economic stability and reputation as a world leader rest on their reaching a compromise.

Stock market investors, I believe, also know that we aren't going over the cliff.

Although the S&P 500 is down 0.87% since the election Nov. 6, the index is up nearly 5.5% from its post-election nadir Nov. 16. The recent rise in the market coincides with the start of serious talks between Democrats and Republicans about tax hikes and spending cuts to avoid the cliff.

COOLER HEADS

Should the stock market take a significant tumble in the weeks ahead, that would put even more pressure on both parties to reach a workable compromise.

Bottom line: Financial Armageddon isn't happening. Not now.

Yes, things might get dicey in the weeks ahead. But in the end, cooler heads will prevail.

The Mayan calendar, however, may be a different story.

Frederick P. Gabriel Jr. is editor of InvestmentNews. Twitter: @fredpgabriel

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