Analysis: U.S. data, earnings suggest "fiscal cliff" fears overhyped

Wed Feb 6, 2013 6:07pm EST
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By Steven C. Johnson

NEW YORK (Reuters) - Jon Najarian's no wimp. He's taken his shots more than once during three decades playing the U.S. stock and options markets and before that as a college football player. So he doesn't scare easily.

But when Congress seemed hell-bent on running the economy over the much-ballyhooed "fiscal cliff" at the end of last year, Najarian finally got skittish.

"For the first time in 31 years, I was completely out of the market at the end of the year," the co-founder of online brokerage said. "I thought Democrats and Republicans were willing to blow the whole thing up."

He wasn't alone. Scores of investors feared Congress would let some $600 billion in automatic tax increases and spending cuts slam the fragile U.S. economy just to make a political point and flooded the safety of money-market funds to avoid a potential plunge in stocks.

Business leaders at some of the nation's largest companies warned that tax policy confusion would suppress hiring, corporate investment and consumer spending.

And then, all of the fear disappeared into the wind. A deal struck on New Year's Day avoided most of the threatened tax hikes, which many feared would have plunged the U.S. economy into recession. The stock market soared to five-year highs. Business and consumer confidence improved.

The economy could yet be slowed by across-the-board spending cuts set to take effect next month. But most of the fears that had chief executives shouting about the sky falling didn't come to fruition.

Not only did the "fiscal cliff" danger disappear but another threat - to head-bang the economy against a ceiling on government debt - was later taken off the table for some months. Even the danger of gridlock leading to a government shutdown has faded.   Continued...

The dome of the Capitol is reflected in a puddle in Washington February 17, 2012. REUTERS/Kevin Lamarque