FISCAL CLIFF

What is the Fiscal Cliff and why is it important?

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What is the fiscal cliff?

The “fiscal cliff” refers to the expiration of a series of economic measures (tax relief, reauthorization of unemployment insurance and the Job Creation Act of 2010) that are set for the end of the year.

If a deal is not reached between the White House and lawmakers, spending cuts will begin to take effect and tax breaks expire, which both sides argue will push the U.S. economy off the “cliff."

The spending cuts could total $800 billion next year.

What happens if an agreement isn't met?

Economists have warned that could tip the nation back into recession.

How likely is an agreement?

Senate Majority Leader Harry Reid, D-Nev., channeled Obama in calling for a quick solution to the fiscal showdown and saying that asking "the richest of the rich" to pay more should be part of the equation. "We know what needs to be done. And so I think that we should just roll up our sleeves and get it done," Reid says.

House Speaker John Boehner says Republicans are willing to consider some form of higher tax revenue as part of the solution - but only "under the right conditions."

All sides are setting out opening arguments for the negotiations to come.

How are world markets reacting?

Financial markets remained volatile Thursday, a day after concerns over the U.S. fiscal situation combined with renewed worries over the European economy to hammer stocks.

However, as U.S. trading gathered pace, the previous day's despondency appeared to settle over markets once again.

"Volatility will likely continue to be the name of the game going forwards as markets lurch from one crisis to the next and investors will continue to trade with extreme caution," said Mike McCudden, head of derivatives at Interactive Investor.

The Associated Press contributed to this story.

 

 

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