World / US and Canada

Heavy blows may not instantly follow fiscal cliff

(Xinhua) Updated: 2012-11-13 10:02

WASHINGTON - Falling into the so called fiscal cliff may not bring immediate devastating effects on the US economy, and re-elected President Barack Obama is better-positioned to forge a compromise on the deficit reduction, said Nobel Prize-winning economist Paul Krugman on Monday.

In his latest column article on The New York Times, Krugman said although the looming combination of tax increases and spending cuts "looks easily large enough to push America back into recession", the political wrangling over the impending fiscal cliff is not like the debt-ceiling confrontation, where terrible things might well have happened right away if the deadline had been missed.

"This time, nothing very bad will happen to the economy if agreement isn't reached until a few weeks or even a few months into 2013. So there's time to bargain," he argued.

Krugman also said Obama, who has won the landslide re-election, is in a far stronger position than in previous confrontations.

"He just won his big election and is, therefore, far better placed than before to weather any political blowback from economic troubles - especially when it would be so obvious that these troubles were being deliberately inflicted by the GOP in a last- ditch attempt to defend the privileges of the 1 percent," he added.

Obama said Friday he would insist that tax increases on wealthiest Americans be part of any agreement to avoid the fiscal cliff, a combination of tax hikes and mandatory spending cuts which are scheduled to kick in next year absent a compromise in the Congress to avert it.

House Speaker John Boehner, a crucial player in the deficit talks, signaled willingness to accept "new revenue" last week but maintained GOP opposition to a rise in the tax rates for the rich, saying that new revenue should come instead from closing loopholes and capping tax deductions.

Leaders of both parties will be invited to the White House this week to build consensus around the fiscal issues.

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