Impact of U.S. Fiscal Cliff on Canada, Mexico and Much of the Developed World Would be Major

The (relative) impact on economies around the world would be major but particularly on Canada, Mexico and to a lesser extent on some other economies in a precarious state –- the UK, Germany, China, and Japan. [The details are illustrated, country by country, in a map below. Take a look.]

So say edited excerpts from an article* posted on www.econobrowser.com under the title The Fiscal Cliff: International Implications, which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) presents below, in part. (This paragraph must be included in any article re-posting to avoid copyright infringement.)

The full effect of the fiscal cliff internationally is illustrated below:

Exhibit 15 from IMF (2012).

Lower commodity prices – 6% to 12% for energy and 3% to 6% for non-energy, depending on confidence effects and policy responses –  would also adversely affects net exporters of these goods. Were the assumed confidence effects more negative, so would be the spillovers.

I would further note that expansionary monetary policy — such as implemented recently by the Fed in QE3 — cannot offset completely the contractionary impact of contractionary fiscal policy. In addition to the zero interest rate constraint, looser Fed policy tends to re-allocate economic activity toward the U.S..

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Conclusion

Hence, the stakes for a successful resolution of the fiscal cliff are high, not just for the U.S., but for the world economy.

* Source: http://www.econbrowser.com/archives/2012/11/the_fiscal_clif_2.html

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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