A report released earlier in November by the Congressional Budget Office, the Washington D.C-based government fiscal watchdog, predicted that, if unchanged, the combination of tax hikes and spending cuts will plunge the U.S. economy back into recession.
While minor, the forecasted 0.5 percent drop in economic output could cause jitters among the investment class and might potentially increase the borrowing costs that the U.S. government currently pays on its debt. Exacerbating this issue is the assertion from the CBO that unemployment would rise to 9.1 percent in 2013, erasing most of the gains of the past four years.
According to various news outlets, the CBO report is a double-edged sword. While the nonpartisan agency warned against the effects of not doing anything about the fiscal cliff, it acknowledged that, from a long-term perspective, letting the economy go over the fiscal cliff might actually be good for the nation's economic health.
Unemployment, under a no-change scenario, would fall to 5.5 percent by 2020 thanks to normalized growth rates. By changing the sequestration cuts and tax increases, the public deficit would rise by more than $500 billion in 2012 and nearly $700 billion the following year.
The expected $55 billion in defense cuts may have a big effect on next year's economic development, as, according to the CBO, those funds would be worth 400,000 jobs and roughly 0.4 percent in GDP growth. The domestic spending reductions, the agency stated, are of similar impact.
American investors should keep these hard numbers in mind as they examine their investment strategies over the next few months. One way for these individuals to reduce exposure is to put their money in trustworthy asset classes such as commodities and cash flow real estate. To learn more about methods of wealth preservation in these trying times, check out GreatWealthStrategies.com today and receive a "Free Game Plan Report."