Creating a Kinder, Gentler Fiscal Cliff
2. A partial and temporary resolution before year-end, with both sides agreeing to work on a "comprehensive" and "permanent" solution in some future timeframe.
This is a likely outcome. Given the deep and wide pessimism whipped up by the media and punditry since the election, this would be very bullish, since it would indicate a conciliatory posture on both sides.
3. A swift resolution with enough bipartisan support to survive the next Congress.
This would obviously be highly bullish, at least in the short-term, but very unlikely. And even this best-case scenario is still bad over the long term.There is no way around the cold math; we'll have to either pay more or spend less, or rather, both. Yes, there's always Fed inflation, from a certain detached and narrow perspective. But that's like changing brake pads when you see a collision coming, and with its own nasty side-effects and risks such as exacerbating the rich-poor polarization. Humans got to the top of the food chain not by jumping off clearly visible cliffs. Nor do we owe our relative success for our ability to find optimal, complete solutions. Rather, we're great in finding solutions to muddle through, especially on social issues. It's in our genes. One way or another, we'll throw enough crap at the cliff to make it a slope. But the bottom is exactly as deep as before. Overall, I expect the market to shift away from the exaggerated pessimism over last few weeks and adopt the more realistic "fiscal slope" view. Sound-bytes from Washington will continue being over-analyzed and carry much more weight than deserved. And, as the cliff becomes a slope, other worries may come into focus -- such as the everlasting euro drama, middle-east and new developments in the ongoing power transition in China that will conclude in March. Follow @BoPengNY This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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