US economy on the edge

The world’s most influential economy is rumbling towards yet another recession at the speed of a freight train, and it could go off the edge if US legislators don’t pull the brakes in time. The fiscal cliff, as it has been dubbed, shall approach on December 31, 2012. If the US Congress did nothing by the end of that day, Bush-era tax cuts amounting to about $221 billion will expire, along with various other provisions that cumulatively account for about $560 billion. The consequent boost to US Government coffers will slash its deficit to half. However, the shock from higher taxes and lower government support for the unemployed and other vulnerable segments of the population will, in all likelihood, propel the US economy into recession. In its latest country review, the IMF has slashed its growth forecast for the US economy from an already dismal 2.1 percent to 2.0 percent in 2012 along with a downgrade of growth prospects in 2013. And that country’s economy is showing signs of further weakening. On Monday, the US Census Board revealed retail sales were lower by half a percent in June, when compared to the previous month. This is the third month in a row that consumer spending has fallen in the US. On June 6, the US Labour Department revealed that less than 100,000 jobs have been added to the economy in the preceding month; missing that benchmark for a third month in a row. Considering the fact that the US Presidential elections are also around the bend, both the Republicans and the Democrats fear that any compromise on their respective fixes for the economy could bring them a bashing at the polls. In any event, the US is unlikely to face any chances of facing a sovereign default; both parties have the fall back option of a sequester, that would extend the status quo in terms of tax breaks for another few months. However, the real test of resilience of the US economy comes in the form of the perceptions of Americans. And given the successive declines in consumer spending, home sales and job creation; it is evident that Americans expect tougher times ahead.