Economists say U.S. economy could handle short fall over ‘cliff’

The economic threat that’s kept many Americans on edge for months is nearing reality—unless the White House and Republicans cut a budget deal by New Year’s Day. Huge tax increases. Deep cuts in domestic and defense programs. The likelihood of sinking stock prices, reduced consumer spending and corporate layoffs. The risk of a recession within months. Still, the start of 2013 may turn out to be far less bleak than feared, say some economists. For one thing, the two sides may strike a short-term agreement before New Year’s that postpones spending cuts until spring. President Barack Obama and members of Congress return Thursday to Washington. Even if New Year’s arrives with no deal, businesses and consumers would likely not panic as long as some agreement seemed imminent. The tax increases and spending cuts could be retroactively repealed. And the impact of the tax increases would be felt only gradually. Most people would receive slightly less money in each paycheck. “The simple conclusion that going off the cliff necessarily means a recession next year is wrong,” says Lewis Alexander, an economist at Nomura Securities. “It will ultimately depend on how long the policies are in place.” The Associated Press has the full story here.