Investors don’t want the US to fall off the fiscal cliff
In recent weeks, all eyes have been on the actions of central banks, with different flavours of monetary stimulus from the Fed, European Central Bank and the central banks of England and Japan grabbing the headlines. Between now and the end of the year, however, the two most important words for investors won’t be “quantitative easing” but “fiscal cliff”.
If you don’t know what this means, you are not alone. For something that might be the difference between a painful market correction in 2013 or another year of rising share prices, there has been surprisingly little discussion of a potentially dramatic deterioration in the economic backdrop in America.
If George Osborne is worried about missing his government debt reduction target he only has to look across the pond to see what a real fiscal crisis looks like. The US has $16 trillion of federal debt and an annual gap between income and expenditure of more than $1trillion. If ever a country has maxed out on its sovereign credit card, Uncle Sam surely has.