While panelists at the Information Management Network's ABS East session “Identifying the Major Global Macro-Economic Risks to the U.S. Securitization Market” rattled off a number of harrowing scenarios, the one related to the fiscal cliff being faced by our government at the end of the year was probably the most chilling.
John Ryding, the chief economist and founding partner at RDQ Economics, said that if nothing is done and the tax breaks that are scheduled to expire do so, then the economy would tip back into a recession. “It’s a tax hike on an economy growing less than 2%,” he added.
Of course, the animosity between the Republicans and Democrats, no matter who will be in charge come January, could in itself push us over the edge of the cliff. And kicking the can further down the road will not make it any easier.
“In all likelihood we will go over the cliff to some extent and then pull ourselves back to the top again,” said Mark Fleming, chief economist at CoreLogic.
In a downside scenario, Moody’s Analytics Senior Director Tony Hughes said that unemployment could grind up to 10.4%.
The panelists believed that as acrimonious as the parties have gotten, the worst-case scenarios were unlikely. But they also believed it could take a market shock — a stock market crash or soaring bond yields — to motivate them to compromise.
“It will be very unsettling for markets,” said Jeff Shafer, a consultant with Standard & Poor’s.