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Recession Ahead if Fiscal Cliff is Triggered?

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    UBS U.S. economist Kevin Cummins on efforts to reach a deal to avoid the fiscal cliff.

  • Duration 6:52
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Well joining me now in US economist for UBS Kevin how.

Are Kevin when we started -- well first welcome and I haven't.

You know a little thing like the fiscal -- approaching -- working at work could be the biggest tax hike and in American history you can.

Fiddle with the numbers and argue about -- just and also the most significant.

Sudden.

Spending cuts and history of sequestration is in effect what is your take as to what will be the impact if we go over the -- Well if we go over the cliff and and -- agreement is reached even in early 2013.

On the economy's -- ahead for recession.

Unquestionably unquestionably.

Constant.

-- -- -- a moderate pace of growth right now somewhere around.

-- a little bit below 2%.

If you get the tax increases that are scheduled and slated to be implemented.

January 1.

It's just gonna be unsustainable for the consumers spend and and it.

Take cold weather the recession this is inevitable.

And that today watching the market it seemed to me that we are watching a rather direct transmission of jitters from Washington DC.

Straight to investors.

-- we watch the market react.

At a press conference is a set of speaker Boehner then start to me that act like something really happen because of meeting was taken place.

Taking place at at the White House.

This is is this the onset of this spoke with anxiety.

I think so.

I think we're probably still another two weeks away -- -- from from an ultimate compromise.

I do think a deal get done.

Whether or not gets done before January 31 while it's anybody's guess.

But I do think the odds are probably in favor of getting it done close -- -- January 31 December 31.

Follow me with drop ended at the inauguration.

Drop.

-- date of the inauguration and for.

It's also or -- the market bets with terrible question.

It and it's also very terrible economy -- to contemplate.

The fact that neither the president or speaker Boehner likely has any idea of what would be a Smart move at least as far as the markets in the economy going forward speaker Boehner held up a chart do we have that chart.

Because I I I think it's terribly -- -- have that chart until today.

Have we got that.

They're gonna bring -- up here in a minute.

But this was the clearest chart we've done a number of things to show what's gonna happen over the course of ten years to two.

-- to 25 and a half trillion in national debt whether it's the Boehner win -- it's that.

The Obama -- -- -- do nothing.

But as we look at this chart I mean it shows clear the spending is the problem and we got folks are.

I would like to characterize them in the words of my wife would not approve we've got some characters.

We're talking point.

Hike in taxes on the 2% is meaningful it's purely ideological.

And doesn't even address the real issue.

I agree with that I -- I don't think the economy can sustain higher taxes.

It does look like that our taxes are inevitable for the upper income individuals.

It seems like that president.

Feels he has a mandate to raise upper income individuals taxes -- now they are higher savers so.

If if that is part of the deal that higher income individuals are gonna pay higher taxes whether or not goes all the way back up to 39% or so.

On you know that's debatable that you do you can figure -- several different permutations.

But I do think that it's inevitable that part of the deal a lot higher taxes.

My view has been -- for a certain portion of those so called higher in earners -- that this will not be significant to raise that rate to 39 point six having those people when they're honest.

Look at that 20012003.

Tax cut.

It's as frankly get.

Whether it was good for the economy -- it was not what we saw was in the years immediately following.

Tepid some of the worst performance of job creation in this economy.

Frankly -- not much worse.

Until we looked at what happened after the 2000.

A financial economic crisis.

This has been -- remarkable.

And no one is talking with you with real conviction or -- great credibility about what it's gonna take to get this economy going again.

While we are watching these -- haggle over -- that damn fiscal what we've got an economy that needs to start growing and we need to start creating jobs and we need to get honest about business practices in public policies that will.

Well at least incentivized.

Their creation.

Right -- I I completely agree that I think there's a lot of red tape and regulation that is holding back this economy from really picking up momentum.

We have had.

Job growth of you know -- 140 or so thousand over the past six months if you look at payroll growth.

We need something more like closer to 200000 a month.

To really make has -- meaningful way in and have growth pick up to.

Above its potential.

But -- of those politicians and Washington don't feel at least that.

That private sector can can take the baton from here and they contribute continue to try to spend and they continue to try to cut interest rates and that sort of policy.

And I think that opens up the door for you know real problem down the road.

Down the road.

Let's talk about -- thirteen.

Ben Bernanke.

Two and a half percent inflation is the new target six and a half percent unemployment did you ever think he would hear the Fed Chairman say.

Monetary policy will not have a target of six and a half percent unemployment rather than.

Other indices and indicators.

Right well -- it was a a pretty surprising move yesterday that they announced this economic outcome based approach to policy rather than.

What they have been doing is telling you that rates are gonna remain low until mid 2050.

They have been moving in this direction but the timing was a little bit surprising yesterday they announced that there there you can go to pre.

A band aid on -- -- report just enough to take -- off the front page of the newspapers in the first segments from broadcast.

Is that enough to through shore up.

Public perception and left the economy and -- thirteen and roll along positively.

-- save so far the consumer as just last week we got a report from the University of Michigan survey of consumers that said.

The fiscal cliff is really worrying.

Consumer's right ahead of this important holiday shopping season.

So if the markets.

Forced the politicians -- Washington that could be one way that you may get a deal sooner rather minor.

I don't know which way -- cross my fingers for that you -- thanks for being here we appreciate it thanks for having come.

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