We need to get this to the Fiscal Cliff! What could go wrong? (Photo credit: DonkeyHotey)

Kicking Spending Cuts To March 1st But Raising Taxes

When the Fiscal Cliff solution came about at the beginning of the year, the Democrats received a lot of what they wanted in tax increases on the rich but gave nothing in return. The cuts were delayed until the end of February, which has now arrived. The cuts are about to happen in a $85 billion reduction in new spending for 2013 which is good for our budget trouble and slightly negative for growth. But growth was slowing already for a number of reasons related to natural disasters, tax increases, and business regulation. Now the country hopes to either live through the sequester or modify the sequester to make smarter cuts than just the generic across the board cuts required.

Cliffs Of Moher #2 (Photo credit: Jim Moran)

Depending on which newspaper or alternate source of news one pursues they can and will find reports that negotiations regarding the fiscal cliff are going well and almost finalized or that they are a disaster and nothing positive is happening.

One of the consequences of these positive and negative reports is that the financial markets reflect the confusion and react in different ways that no person can accurately predict. This leaves millions of investors totally confused and deeply concerned of their investments and their futures. Trading the volatility index (VXX) is probably your best bet since all the uncertainty will cause it to rise. Just be careful for a deal to get done which will make the Index reverse course quickly.

(fear) the Fiscal Cliff... (Photo credit: MyEyeSees)

There is heavy debate about the fiscal cliff and how it will affect the nation's long term debt; and how fiscal policy will effect growth over the next months and years. The outcome of the fiscal cliff negotiations are directly related to the functionality of the current political leadership and the status of the economy in 2012. These two areas are very much connected since the fiscal policy in both the US and Europe has already caused a drag on economic growth. The slowdown is expected to be ongoing as policymakers work on addressing the long term debt burdens.