WASHINGTON (AP) — Congress and the White House can soften the initial impact of “fiscal cliff” tax increases and spending cuts if they fail to reach a compromise by Dec. 31. But one thing they can’t control is the financial markets’ reaction, which possibly could be a panicky sell-off that triggers economic reversals worldwide.
The markets’ unpredictability is perhaps the biggest wild card in the political showdown over the so-called fiscal cliff.
Republican lawmakers increasingly recognize that President Barack Obama’s re-election gives him a strong negotiating hand. Some Democrats say it would be even stronger if the deadline passed without a deal because the resulting tax increases on virtually everyone would pressure Republicans to give more ground in January. Still, tempering that confidence is the fear that stocks could plummet in the meantime.