Council on Foreign Relations Global Economics Monthly
Issue 4 | September 2013

Global Economics Monthly

Fiscal Cliff Redux: Last Chance to Get It Wrong?

Robert Kahn, Steven A. Tananbaum Senior Fellow for International Economics

Have pity on the U.S. fiscal analyst. Over the last three years, U.S. policymakers have repeatedly walked up to the edge of the cliff and threatened a leap into the abyss with unseemly enthusiasm. Dire scenarios have been predicted and analyzed, but each time policymakers have stepped back at the last minute. The can has been kicked. It is not surprising that markets have become somewhat numb to concerns about this fall's looming spending and debt limit confrontations.

Will this time be different? The current consensus is that it will not. After a noisy debate, there will be an agreement on federal spending for the 2014 fiscal year and an extension of the debt ceiling. Yet there is no clear path forward to reaching a deal that navigates the political tripwires, is passed by both houses, and is signed by the president. To complicate efforts, this is likely to be the last major fiscal battle before the 2014 midterm elections. Odds are rising that these issues may not be settled until January 2014, and the risks of an impasse are higher than markets now anticipate. This suggests that some market turmoil may be in the cards (and indeed necessary) before then. Read the full Monthly Report >>

Table 1: A Brief Shutdown Would Have Modest Macroeconomic Effects Source: Department of Commerce, Goldman Sachs Global Investment Research. Read more »

Looking Ahead: Kahn's take on the news on the horizon

German Elections

Parliamentary elections on September 20 should return Angela Merkel to power, but are unlikely to prompt a material change in German policy toward Europe. With Greek, Cypriot, and Portuguese programs under stress, tail risk returns to the periphery.

China's Shadow Banks, 2.0

Concerns are rising that funding pressures could return in September. Is the central bank prepared to squeeze again?

EM Crisis Watch

Emerging markets are worried that Federal Reserve tapering will trigger capital outflows, deleveraging, and crises. Will this be like 1997?

From the Macro and Markets Blog

Jackson Hole: Future Worries

Robert Kahn

This year's Jackson Hole Federal Reserve conference serves as a barometer of policy makers' concern and anxiety over tapering, asset purchases, and emerging markets. Here are my summaries and opinions of the main takeaways. Read more »

Argentina End Game

Robert Kahn

The U.S. Second Circuit Court of Appeals has ruled that Argentina must pay in full those private debt holders who refused to accept a deep discount when the country defaulted on a record $95 billion debt in 2001. What are the implications for Argentina's future dealings and for broader markets? Read more »

Europe's December Surprise?

Robert Kahn

While Europeans suffer from adjustment fatigue, European leaders are gearing up for a potential December meeting for a "move toward more Europe." The period of financial market calm may be coming to an end. Read more »

More from CFR's Center for Geoeconomic Studies

The Maurice R. Greenberg Center for Geoeconomic Studies (CGS) works to promote a better understanding of how economic and political forces interact to influence world affairs. Visit the CGS site to learn about two new books from CFR's Benn Steil and Jagdish Bhagwati, read the latest Chart Book, and much more!


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