Gyroscopic Investing

Is going over the fiscal cliff already priced into market?

From scanning headlines, I think its reasonable to conclude we will go over cliff?

Even if we go over the cliff, there will still be January 2, January 3, January 4, etc.

It's not like going over a real cliff where there is a point of no return.

Congress can change the rules any time it wants to, with any effective date is wants to use.

Spending cuts and revenue increases during a weak economy is doing wonders for Greece right now. Sign me up for some of that!

MediumTex wrote: It's not like going over a real cliff where there is a point of no return.

Congress can change the rules any time it wants to, with any effective date is wants to use.

While it's true that Congress giveth and Congress taketh away, the bigger issue is that people cannot plan when they do not know what the rules are going to be.  Whenever I'm between assignments, for example, I do not know what or when my next assignment will be, so I act conservatively and hold on to my resources.  This "hoarding of cash" means I buy less stuff, which in turn means less economic activity.

When the rules are changing in an unpredictable fashion, people cannot make long-term decisions.  I cannot finalize my household budget for January 2013 yet, for example,  because I cannot calculate my January 2013 take-home pay.  If a temporary patch is put in place, that solution just means we are going to have to go through this uncertainty again in six or 12 months.  I would rather not spend my money if I cannot predict what my future cashflows are going to be.  I find that a large cash buffer is the way to handle uncertainty in the macro environment because the increased liquidity gives me more room to maneuver should things change unexpectedly.