As US cliff nears, govt, Wall St miss pt
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Exit US presidential poll. Enter looming budget crisis. And once again, a disconnect between how Washington and Wall Street see the world could cause pain for investors if the two get their signals crossed.
At the beginning of next year, $600 billion in tax increases and spending cuts - known as the fiscal cliff - will automatically become law unless Congress acts. Such dramatic moves could hammer consumer and business spending, push the U.S. economy back into recession and send markets reeling.
However, there is a sense that neither the financiers and investors in New York nor the lawmakers in Congress are taking each other seriously enough. Many in Washington believe Congress could do nothing, and the market reaction would be relatively sanguine. Plenty on Wall Street say the fiscal cliff, one way or another, will be dealt with. It raises the possibility that Congress will sail over the cliff, and markets will freak.
The markets have been way too sanguine on the fiscal cliff, said Greg Valliere, chief political strategist for Potomac Research Group, which tracks Washington for institutional investors.
The fiscal cliff's automatic triggers were built into law as a way to force lawmakers to tackle huge US budget deficits.
Wall Street banks, investors, and financial industry lobbyists have coalesced around the view that after the elections Congress will reach a short-term deal to avert the worst of the cliff. In short, they believe Congress will kick the can down the road for several more months.
They'll have to do some sort of short-term extension to buy some time to develop the larger component of addressing the fiscal cliff, which is a large-scale fiscal plan, said Ken Bentsen, head of the Washington office for financial industry group SIFMA, who sees that happening.
As SIFMA's chief lobbyist, Bentsen is essentially Wall Street's eyes and ears in the nation's capital. He was a congressman himself - a Texas Democrat who served in the House of Representatives from 1995 to 2003.