Switch to Desktop Site

Five reasons America won't fall off the 'fiscal cliff'

Next Previous

Page 5 of 11

About these ads

Many analysts expect the stock market to play a role in pressuring the two sides to hatch some sort of agreement. Letting the nation fall off the cliff – or even approach the cliff – could result in a catastrophic drop in the stock market, they say, which would erode people's portfolios and financial institutions' balance sheets.

"If this craters, that means markets crater," says Douglas Holtz-Eakin, a former director of the CBO and president of the conservative American Action Forum. "And that means all that collateral for the banks crater." He thinks the nation would be facing some of the same problems it did in 2008, at the beginning of the financial crisis.

The markets have already been registering their views over this fiscal pivot point, as they did over earlier ones. In the first week after the election, the Standard & Poor's 500 index sank 2.3 percent, in part over anxiety about the higher tax rates on capital gains and dividends if the fiscal cliff isn't fixed.

In 2008, after the House rejected the bank bailout plan (the Troubled Asset Relief Program, or TARP), the Dow Jones Industrial Average dropped more than 700 points. When the legislation returned to the floor days later, the bill drew nearly 60 new supporters and the legislation passed.

Next Previous

Page 5 of 11

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.