Planned reductions of federal spending could throw the U.S. over a “fiscal cliff” and into a deep recession, warned the Congressional Budget Office (CBO) recently. Combined with about $500 billion in tax hikes, this event could be disastrous to millions of persons and harm the credit rating of the country.
The CBO report stated that the unemployment rate would be pushed even higher, to around 9.1 percent by the end of 2013. With millions affected by job cuts due to federal budget cutbacks, federal revenues would also drastically decrease. The CBO had previously predicted a mild recession for early 2013, along with slow economic growth around 1.3 percent. Their newer forecast indicates slowed growth to 2.9 percent and likens this situation to the tough recession experienced in the early 1990s.
If Congress cannot come to an agreement to halt the fiscal cliff occurrence before 2013, over 2 million jobs could be lost, along with consumer confidence which also will reduce the GDP and tax revenues. Congress has been unable, under the current administration, to produce any budgets for the country, while spending and borrowing has continued. Planned across-the board cuts would affect critical areas of defense, Medicare and most other programs.
Businesses are reluctant to spend and grow, due to the economic uncertainties, and hiring has been greatly reduced. The government counts on spending by middle-class families, but in reality, the bigger portions of spending and economic gains come from businesses and higher income sources. Sept. 30, 2012, marks the first year of five in which the deficit would not exceed $1 trillion, but rather would drop to $641 billion. Meanwhile, the national debt has reached its highest level in over 60 years, almost twice that of 2007, prior to the beginning of the Great Recession.
In light of this uncertainly, it is more important than ever for businesses of all kinds to maintain a close watch on developments and to plan future budgets, spending, hiring plans and investments even more carefully than ever before. Use of your experienced B2B CFO® partner can help your business achieve successful financial management; contact me to discuss your strategy and find out how my services can help your company maximize cash, profitability, sales and company value.