What you need to know about the 'fiscal cliff'

What is the "fiscal cliff"?

The "fiscal cliff" is an inept metaphor for the looming consequences of some bad congressional decisions.

On or around Jan. 1, about $500 billion in tax increases and $200 billion in spending cuts are scheduled to take effect. That's equal to about 4 percent of GDP, which is, according to the Congressional Budget Office, more than enough to throw us into a recession (more on that later).

Analysts disagree on exactly how quickly the recession would begin.

That's why the "cliff" metaphor is inept. If financial markets freak out, it might happen very quickly, proving the "cliff" imagery correct. But it might happen gradually, affirming those who've argued it's a "slope." Either way, both parties agree it shouldn't be permitted to happen at all. But that's the rub.

The reason that the fiscal cliff could push us into another recession in 2013 is because it enacts too much deficit reduction upfront, not too little. And yet, deficit reduction is something most members of Congress support, at least in the abstract.

So both sides want to replace the fiscal cliff with something. The question is,with what? What is the fiscal cliff in one sentence? Much too much austerity, much too quickly.

If it's not a cliff, what is it?

The term "fiscal cliff " comes from testimony Federal Reserve Chairman Ben Bernanke delivered before Congress earlier this year. But, as we mentioned, the imagery has sparked some dissent. The Center on Budget and Policy Priorities thinks it's more of a "slope." The Economic Policy Institute calls it an "obstacle course." We call it the "austerity crisis." That solves two problems. First, the danger the economy faces is too much austerity too quickly, so swapping the term "fiscal" for the word "austerity" actually better reflects the situation. Second, while we don't know if it'll be a cliff or a slope, we do know it will, if permitted to go on for long enough, be a crisis. Thus, the "austerity crisis."

What's in it?

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