Counterparties: The CBO rates the fiscal cliff

May 23, 2012

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The Congressional Budget Office released its analysis of the economic effects of the so-called fiscal cliff, and it’s not pretty:

Growth in real (inflation-adjusted) GDP in calendar year 2013 will be just 0.5 percent … with the economy projected to contract at an annual rate of 1.3 percent in the first half of the year and expand at an annual rate of 2.3 percent in the second half … such a contraction in output in the first half of 2013 would probably be judged to be a recession.

These dangers aren’t new, but ever since John Boehner threatened to add another debt-ceiling fight to the mix, they’ve been amplified.

Looking at Boehner’s comments, Ezra Klein thinks the US Government is being set up for its very own Lehman moment: “We’re either likely to solve our fiscal problems early in the year in [a] way that defuses Boehner’s debt-ceiling threat or we’re likely to spend 2013 in a state of permanent crisis in which Congress lights the economy on fire”. Monetary policymakers are already attuned to the dangers. The most recent Fed minutes called the impacts of fiscal policy uncertainty a “sizable risk” to the economy. If Congress and the president do get it right, that risk could give way to 4.4% growth.

Or for a truly terrifying scenario, Joe Weisenthal imagines the stratospheric levels of Republican intransigence that a Romney triumph in the popular vote paired with an Obama victory in the electoral college would bring. – Ben Walsh

On to today’s links:

New home sales have bottomed, but 2012 is still likely to be the housing market’s third-worst year ever – Calculated Risk

EU Mess
Euro zone members agree to draw up individual contingency plans for Grexit – Reuters
US money market funds’ search for yield through exposure to European banks – Sober Look
Despite Hollande’s support, Merkel continues to oppose euro bonds ahead of EU summit – NYT
European banks remain unprepared for the fallout of a Greek exit from the euro – Bloomberg
A roundup of economists’ estimations of the fallout from Greece leaving the euro – WSJ

Source: Banks cut estimates just before the Facebook IPO because company executives told them to – Business Insider
The Facebook forecast scandal could lead to an insider-trading case – John Carney
Facebook: The list of incompetents – Felix

A glowing profile puts Ina Drew’s replacement in the running to succeed Jamie Dimon – FT
JPMorgan brings an exec back as senior vice-chairman after more than a decade in retirement – DealBook

Vintage Bess
What if Mark Zuckerberg wore a three-piece suit with a monocle to the Facebook roadshow? – Dealbreaker

Everest’s congested summit – Outside

Good Questions
Where do all the dead pigeons go? – The Atlantic Cities

All of the sudden executives want to go to trial against the SEC – Bloomberg

Large Numbers
The RIAA claims Limewire owes it $72 trillion – AV Club


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