The Fiscal Cliff

Fed Chairman Bernanke told a group of senators yesterday that scheduled end of programs including the Bush tax cuts, the payroll tax holiday and extended unemployment benefits, as well as budget cuts that are set to take effect in January of 2013 would have a negative effect on the economy.  This statement is similar to one he made at a news conference last month: “It is very important to say that if no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that there is, I think, absolutely no chance that the Federal Reserve could or would have any ability whatsoever to offset that effect on the economy”.  Anyone up for a one year extension on some or all of the Bush tax cuts?  Might such an extension become an election year gimmick?  Eventually, we must deal with the unholy trinity – tax increases, entitlement reform and a significant reduction in government spending.  Or, we can just follow the lead of French and Greek voters and elect anti-austerity candidates.  Surely someone will bail us out…