55 days until fiscal cliff in US: “There is every chance for Moscow to become a new international financial centre”

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Pavel Orlov
Nov 7, 2012 15:40 Moscow Time

США экономика Уолл-стрит Уолл стрит Wall Street  08.08.2011n

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There are 55 days left until a fiscal cliff in the US. In January, all tax remissions for business will be abolished, which means that the White House will have to sharply cut down expenses and raise the state debt level once again. The previous time, the Congress established the upper limit of state borrowing at $16trln 390bln. Today, the US has only $150bln to meet its budget commitments. Considering the pace of the country’s spending, this is in fact an impossible task.

A fiscal cliff is an instant U-turn in a country’s financial policy. In the US, this could happen on the 1st of January 2013 when the tax concession period expires. The US economy could lose up to 5% of the GDP and another several hundred thousand people could be made redundant. The crisis in the US is likely to seriously hit the world economy again, Doctor of Economics Pavel Medvedev believes.

“If the US purchase power drops the country will buy less, which means fewer commissions for China, Japan and Europe. Those regions would also have fewer jobs as a result. It is a domino effect.”

The US has never faced a fiscal cliff throughout its history, so measures required for stabilizing the country’s economy would be unprecedented. In this connection, the finance ministers of the G20 countries are calling on the US authorities to speedily take a decision regarding the economic risks, which they declared at the Mexico summit. In this situation, the US president is practically given the main role in finding a compromise between a budget savings policy and tax concessions.

In any case, the Congressmen will have the last word. The future of the US economy depends on their efficiency. But if Washington fails to overcome the political differences the country could face another Great Depression. However, even this kind of economic shock is incapable of shaking the Russian economy, Managing Director of the ALOR company Sergey Khestanov says.

“In the worst case, we could face a short-term considerable slump in oil prices, to $80 and even $60 a barrel. If this situation lasts for a few months the reserve funds that Russia has at its disposal will allow it to survive the slump painlessly.”

Experts share the opinion that if the White House consents to a fiscal cliff the US could lose the status of a leading world economy in the new year. US agencies are already secretly discussing the possibilities of changing the sovereign rating. Investors would look for better markets for their capitals again, and China and Europe that depend on the US economy are unlikely to top the list of good markets. There is every chance for Moscow to become a new international financial centre.



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