Will the Global Economy Tumble Off America’s Fiscal Cliff?

Forget all of the talk about the rise of China and the shift of economic power from West to East. The U.S. economy remains the largest and most important in the world, and what happens in America still determines what happens to the global economy. No wonder, then, that investors from Hong Kong to London have become fixated on the looming “fiscal cliff” facing the U.S. government. If re-elected President Barack Obama can’t reach a new deal with Republican Party Congressmen in the House of Representatives on closing the country’s trillion-dollar budget deficit, a slate of deep spending cuts and tax hikes will automatically come into effect next year that will in all likelihood derail the slow-moving U.S. recovery from the 2008 financial crisis. That would without doubt do some serious damage to growth globally. Rating agency Fitch proclaimed that “the U.S. fiscal cliff represents the single biggest near-term threat to a global economic recovery.” A U.S. plunge off the fiscal cliff would hit the global economy at an especially fragile moment. The news just about everywhere has already been bad. Fears that Japan might slip into (yet another) recession rose on Monday when the world’s third-largest economy reported its GDP shrank by an annualized 3.5% in the quarter ending September. The euro zone is expected to contract in 2012 as well. On November 7, Mario Draghi, president of the European Central Bank, warned  that even powerhouse Germany is starting to suffer the ill effects of the debt crisis. “Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area,” Draghi said. “But the latest data suggest that these developments are now starting to affect the German economy.” European leaders and the IMF continue to bicker over the bailout of Greece, leaving open the possibility that the country could still get forced from the monetary union. Even emerging markets are struggling. China and India are experiencing their worst slowdowns in many years and both have major reform challenges to confront. No wonder the IMF

READ THE ORIGINAL POST AT business.time.com