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WASHINGTON (Reuters) - The United States runs the risk of a recession far deeper than many investors and policymakers may think if lawmakers fail to avert looming tax hikes and cuts to public spending.
Absent action by Congress, the country will face the so-called fiscal cliff at the start of next year, a combination of lower spending and higher taxes that is expected to extract about $600 billion from the economy.
Many economists think every dollar of deficit reduction will subtract nearly the same amount from economic growth.
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But research by economists in academia and at the International Monetary Fund suggests a dollar of deficit reduction could drain as much as $1.70 from the economy, making the prospective belt tightening much more dangerous.
"You can take that 0.5 percent contraction and double it," said Barry Eichengreen, an economist at the University of California, Berkeley.
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http://www.washingtonpost.com/busin...730250-1ecf-11e2-ba31-3083ca97c314_story.htmlThe “fiscal cliff” is still two months off, but the scheduled blast of tax hikes and spending cuts is already reverberating through the U.S. economy, hampering growth and, according to a new study, wiping out nearly 1 million jobs this year alone.
The report, scheduled for release Friday by the National Association of Manufacturers, predicts that the economic damage would deepen considerably if Congress fails to avert the cliff, destroying nearly 6 million jobs through 2014 and sending the unemployment rate soaring to near 12 percent.
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http://www.reuters.com/article/2012/10/25/us-usa-economy-idUSBRE89N1AM20121025
http://www.cbo.gov/sites/default/files/cbofiles/attachments/FiscalRestraint_0.pdf
This would seem to indicate a systemic weakness in the US economy, a weakness that has been developing for some time - like two or three decades.