Go over ‘Cliff’ to solve fiscal woes – Chandler

ANCHOR QUESTION OFF-CAMERA (ENGLISH) SAYING:


What’s your general take on this whole fiscal cliff matter?

MARC CHANDLER, GLOBAL HEAD OF CURRENCY STRATEGY, BROWN BROTHERS HARRIMAN (ENGLISH) SAYING:


I think two important points. One is that it’s not being imposed on the United States from the outside like it was for Greece or Spain or Portugal or Ireland. This is really, even though we think of it as a fiscal problem, it’s really a political problem. Mr. Market, as it were, is not forcing the U.S. to correct its deficit. We still have, for all practical purposes, record low interest rates. And so it’s not like there’s a capital strike against the U.S. And so I’ve thought all along that most likely we’re going to have to go over the cliff. It’s easier to solve it after the fact than before the fact. Because imagine what’s going to happen, people who don’t want to raise taxes are not going to raise taxes. The system is going to raise taxes and they’re going to be able to come along and rescue us and cut our taxes after we go over the cliff to bring us back. So I think that most people expect some fiscal tightening next year but not the full kit and caboodle of the fiscal cliff.


ANCHOR QUESTION OFF-CAMERA (ENGLISH) SAYING:


Well that kind of gets into what you think will happen. So it’s sounding like you think we’re going to go off.


MARC CHANDLER, GLOBAL HEAD OF CURRENCY STRATEGY, BROWN BROTHERS HARRIMAN (ENGLISH) SAYING:


For a short period of time. And then they’ll have some compromise, something that some of the critics would say is going to kick the can down the road. There’s not going to be enough spending cuts for some people, not enough revenue increases for other people. And so we’re still going to be stuck with a debt-to-GDP ratio that’s relatively high, about 90 percent. We’re still going to be looking at a deficit for next year close to a trillion dollars. And so I think that the market is looking beyond that. The big issue I think is how much of a slowdown do we get next year because of this fiscal cliff, because of the tightening of policy, that is from tax increases and spending cuts, how much of a drag on the economy. It’s important because when you look around the world, this is really what we have a shortage of right now. It looks like there’s too much of a lot of things, too little of what we call aggregate demand. Countries like the United States are growing but very slowly, Europe is contracting, Japan is contracting, China has slowed down, the U.K. has been basically stagnant for a year. And so the key issue is where is aggregate demand going to come from and this is the world’s largest economy and if we don’t provide aggregate demand it doesn’t look like it’s going to be coming from any place else.