President Barack Obama and Congress need to negotiate a solution to the so-called fiscal cliff of tax increases and spending cuts before the end of the year or risk a return to partisan gridlock, according to former Senator Christopher Dodd of Connecticut.
“You have about six or eight weeks to get this right,” Dodd, chairman and chief executive officer of Motion Picture Association of America Inc., said at FX12, a foreign-exchange conference hosted by Bloomberg LP in New York yesterday. “If you don’t, I guarantee you people will go back into their respective corners, solidify positions, regain their footing, and it’ll get very, very hard to get back.”
The fiscal cliff refers to the $600 billion of tax increases and spending cuts that will kick in automatically in 2013 unless Congress fails to break a partisan deadlock and reach agreement on the nation’s budget deficit. Failure to reach an agreement risks pushing the U.S. back into a recession.
The dollar fell as much as 0.6 percent to $1.2778 per euro yesterday, the biggest decline since Oct. 30, after the minutes from the latest Federal Reserve meeting showed a number of officials favored additional monetary stimulus next year.
The greenback’s status as a haven may be challenged by the approaching fiscal cliff as investors reduce dollar holdings linked to the U.S.’s mounting economic burden.
A contingency plan may be necessary in case the U.S. government is unable to completely address all aspects of the fiscal cliff, according to former Bear Stearns Cos. Chief Executive Officer Alan Schwartz.
“The real test to me is what’s the right sort of mechanism to put in place in case we can’t get all the details of this right in six to eight weeks,” said Schwartz, executive chairman of Guggenheim Partners LLC. “We have to come up with a framework that is a type of backstop that we say goes into place unless we think of something better.”