Fiscal Cliff Won’t Be a Crisis

The clock struck midnight on New Year’s Eve and US congressmen and senators failed to reach a deal on the set of rollbacks, tax increases, and expenditure cuts designed to promote such a deal. Now many people in the US are concerned what this will mean for their finances and for the US economy itself.

The complicated issue of credit rating and how it relates to the US economy is also on many peoples’ minds. Last year, one ratings agency downgraded the US credit rating from its pristine AAA rating. This caused an explosion of doomsayers to start spreading information about how the collapse of the US economy was well on its way.

But as Roben Farzad reports for Bloomberg, after the credit rating reduction, “U.S. bond prices rose and yields fell while our printing presses went full-tilt.” There was little to no change in how creditors demanded American debt.

With our leaders in Washington sending us over the fiscal cliff, many are now wondering if it’s now doomsday time for the US economy. Will we get downgraded? Will the dollar weaken? These are important issues for regular citizens as well as corporations. How the economy is predicted to react is vital for making important financial decisions.

Despite the cynicism about the topic, the fiscal cliff will likely not be a problem for the US credit rating. Farzad again reports that ratings agencies are not expecting terrible things to happen to the rating. He quotes Moody’s from December 27th when they stated “AAA rating of the US government is based on …very high economic strength, very high institutional strength, very high government financial strength, and low susceptibility to event risk.” The agencies don’t see much changing in regards to the strength of the US economy and its credit.

The stock market ended with a rise on the 31st of 2012. The cliff analogy might not have been the best way to describe the package of cuts and taxes. Congress has plenty of time to adjust, fix, change, or come up with a new deal to rollback everything that was implemented when we reached 2013. Keep charging ahead with your corporate and personal financial plans; 2013 is going to be a good year for the US economy.