The US fiscal cliff

Originally Posted by pankajj

I have been reading on this topic "The fiscal cliff" for a few days now on various sites like moneynews.com, CNBC, bbc.co.uk and mos trecent at equitymaster.com written by Jawahar Mulraj.
All these are revolving around US economy and its impact on world over. Am not sure on my understanding around this, but does anyone get this better

Just some background. US Government budget has been running on deficit for years and years now. By deficit, it means expenses are more than the income the government gets. Pretty much most countries except maybe China run their budget on deficit.

This deficit is covered by the government by issuing bonds and money raised through this is used up. Currently US Govt deficit is close to 16 Trillion USD i think. And their government had defined a ceiling limit for this fiscal deficit may be at 17 Trillion USD. Now, US budget will be coming up in Jan 2013 which if planned as usual will cross that fiscal deficit ceiling of 17 Trillion which has become a major debate now.

If they want to avoid hitting that fiscal ceiling limit, they need to either increase taxes (Income) or cut expenses like Healthcare or do both. (Or) they may agree upon increasing the fiscal ceiling limit. Either way, there's no easy way out and they face tough choices.

All these are known, but is in focus now as Budget is coming up soon.