EMERGING MARKET ADVISER - On the edge of the fiscal cliff - Business - Jamaica Gleaner - Wednesday | December 26, 2012:
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With the end of the year a week away, the market is bracing for the drama that will be experienced as the United States economy plunges over the fiscal cliff.
Corporate treasurers were busy, issuing special dividends before the rise in tax rates.
Although November and December tend to be slow for investment bankers, there was a flurry of new bond deals in anticipation of the changes that loom on the horizon.
The outlook for compromise does not look good. President Obama's strong electoral showing emboldened him to take on a much more ideological stance. For the first time since the midterm elections, the Republicans are on the defensive. They will most likely have to cede ground on the issue of higher taxes.
In the end, the market will force the two sides to the table. A barrage of angry phone calls, letters, emails and faxes will force legislators to come to an agreement in order to save their own skins. Nevertheless, the US economy is on the mend, and the perils of the fiscal cliff will soon recede into the background.
Two drivers are powering the US economy. The first is the recovery of the financial sector.
For the most part, US banks recapitalised and de-levered—thus stabilising their balance sheets. Due to regulatory changes, they moved out of proprietary trading activities and lifted commercial lending.
The US Federal Reserve reported a 12.6 per cent y/y increase in commercial loans during October and a 77.8 per cent drop in trading assets. Consumer lending and automobile loans also posted improvements, as households took advantage of the more stable economic environment to update appliances and cars that were not replaced during the last four years.
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