In last years June 2011 fiscal cliff fight, President Obama went on the nightly news to state that if there was no agreement on the Fiscal Cliff, then it could not be guaranteed that Social Security checks would go out. In this years fight, the president has not stated the same message with regard to Social Security. This creates the question, if there is no agreement on the fiscal cliff, does the same danger apply that Social Security checks may not be issued, or may not be issued on time?
In this round, the president and other lawmakers have talked less specifically about a variety of programs that will be cut or not receive funding and how it may affect certain sectors of the population. It seems that the politicians do not want to frighten only one group, and in this case it would be the most vulnerable group within the population, Seniors and the elderly. The truth is that certain programs will be cut and they may include Medicare and Social Security. It may not have been specifically talked about on this occasion but it is a real possibility.
The debt ceiling will be raised, that is certain. The only real question is if it will be raised before damage is done to the economy. There are several ways through which the economy may be damaged if the debt ceiling is not raised by the deadline.
– The stock market will react very negatively in fear that spending may be cut over 40%
instantly. Markets will also react negatively due to the fact that the bond rating agencies
Moody’s has stated that they would very likely lower the ratings of U.S. Treasuries if
there is not an agreement, preferably longer term agreement on the Fiscal cliff.
– If the debt ceiling is actually broached beyond the hard deadline and not solved, there
would be spending cuts in the order of 40% + instantly. This would be a major shock
to the economy. A sudden Government decrease in spending of over $1 trillion would
definitely be a shock to the system. Politicians would be unwise to play politics with this issue.