By Tom Bradley
I've just returned from a few days in the U.S. (Denver – clean, friendly, no snow, great music, the Brown Palace Hotel in all its Christmas glory and a Van Gogh exhibit) and have heard and read waaaaaayyyyyy too much about the fiscal cliff. Fortunately, I've come up with a solution that can end the whole thing by year-end.
The Democrats and Republicans know they have to compromise, but neither wants to give up too much and be perceived as losing the battle. Well, I propose that they both give in and each accept their worst case scenario. I know it sounds unconventional, but I'm suggesting the Democrats get their tax increases and the Republican get their spending cuts.
Yes, both parties lose by giving the other what they wanted, but they go home for Christmas knowing that the other side didn't get what it wanted either. In the meantime, the real winner is the country, because it gets what it desperately needs - a hard-hitting solution that makes some progress in addressing the deficit. In reality, even the "two losers and one big winner" solution would represent only a baby step in the direction of fiscal responsibility.
Will my solution put the U.S. into recession? Perhaps, but it's time Washington stopped trying to fix the debt issue with more debt and accept a slow (hopefully sustainable) growth rate. Indeed, it's time to take some risks on the economy with the employment situation improving and the housing industry stepping up to replace some of the government stimulus.
No matter how close we get to the edge of the cliff, I truly believe the capital markets won't care for more than a day or two. That's because they know whatever the outcome, the situation will have improved little and the tough decisions are yet to come.