With seven weeks until the fiscal cliff, Congress assembled on Tuesday to begin what may become the most closely watched session this year. An estimated $560 billion in spending cuts and tax increases set to automatically trigger at the end of the year could cut GDP by four percentage points, and raise unemployment by one if a solution is not found beforehand.
With the dust of the election settling, market leaders are pointing at the fiscal cliff as the single largest roadblock to economic growth.
Bank of America (NYSE:BAC) CEO Brian Moynihan pointed to concerns over the fiscal cliff preventing clients from participating in the markets. Businesses are holding back across the board from purchasing capital goods until some sort of actionable insight emerges, and when business activity slows banks suffer. “Simply put,” Moynihan said, “our clients tell us they will not be aggressive in times of uncertainty.”
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JPMorgan (NYSE:JPM) CEO Jamie Dimon told CNBC that the foundation of business in America is strong, and could be poised to boom if cliff issues can be surmounted. “We’re not religious about all the issues about taxes and spending, we just want a rational, thoughtful solution,” he said.
Dimon has indicated that the damage of the fiscal cliff is already being felt. It’s not just falling over the edge that is troubling, it’s the suppressing effect of uncertainty on the market that’s troubling. Businesses are beefing up their war chests and sitting on them. It’s like WarGames, the only winning move in the economy is not to play. And when businesses don’t play, there’s no growth.
Banks are also waiting for clarity on new banking regulation that has been building in starts and stops since the financial crisis. The recent election cycle will put Massachusetts Democrat Elizabeth Warren into the Senate, who chaired the five-member Congressional Oversight Panel that was created to manage the bailout.
“It is what it is at this point,” said Dimon about new regulations forcing his bank to carry a 2.5 percent capital buffer.