CBO: ‘Fiscal Cliff’ Could Trigger Recession (Oh well! America asked for it)

Wall Street Journal ^ | 11/8/2012 | COREY BOLES

[tobyhill]

The fiscal cliff would drive the U.S. economy back into recession next year and result in a jump in the jobless rate to 9.1% by the end of 2013, a new report from the Congressional Budget Office said.

The CBO said economic output would drop by 0.5 percentage point in 2013 if Congress fails to act to avert the tax increases and spending cuts put in motion by an earlier deficit agreement. But the CBO added the U.S. economy would in the longer run return to better growth rates and lower employment. The CBO, the independent budget arm of Congress, said the unemployment rates will fall to 5.5% by 2020.

The agency has previously forecast that the U.S. economy could fall into recession next year if nothing is done to avert the fiscal cliff.

[yellowhammer]

I like the way you think! Awesome post!

[CzarChasm]

the first thing that leaps to mind is “how accurate are the CBO’s projections?”

so, i googled, and one of the first results was
http://research.stlouisfed.org/publications/review/12/01/21-40Kliesen.pdf

which is far too long to read right now, but if you skip down to Figure 8 on page 29 you can easily see that CBO projects are less accurate than a random-walk model.

in other words, CBO projections are essentially useless noise

[EnquiringMind]

Good, bring it on. Too late to stop it now.

[Gator113]

Trust me.... my insults will be harsh, in your face and nonstop. ;>)

[kearnyirish2]

“This would be a giant wave across the US. Figure at least 250k gov’t workers would eventually be dumped.”

Over the past few years (thanks to Governor Christie and his property tax cap) NJ has laid off THOUSANDS of cops, teachers, and firefighters - mostly in areas that weren’t paying them out of their own property tax bases (as the rest of us have to do in NJ). Fed and state aid ran out, and the layoffs have been coming every year since as these workers fight for 4+% annual raises but can only be paid out of 2% tax hikes. Each year there will be less of these workers, but they will be a year older and a year more expensive.

“You could force early retirement onto a quarter of the candidates very easily.”

An increasing number of these workers are rejecting buyouts because they know they have no value in the private sector, they spent their oversized paychecks as they “worked”, and their compensation and perks are so superior to anything the private sector offers anyone else at this point (unless you are a CEO).

“I think most people want to just keep going with everything intact.”

Most middle class people know this is impossible; our taxes have remained high as wages remain stagnant and are eaten away by inflation. The permanent multi-generational welfare class wants things to continue as usual; here in NJ they are looking at a grim reality as their police protection is pulled and their neighborhoods start to resemble Mogadishu.