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After the elections, market attention will shift to the Fiscal Cliff – economist shorthand for the double hit of tax increases and spending cuts set to take place at the end of the year. We believe financial markets have severely underestimated the true impact of this looming potential debacle. The fiscal contraction that will occur is around $700 billion, of which only $80 billion is priced in, according to the only study that has attempted to quantify the impact. If Congress does not adequately address the Fiscal Cliff, the likelihood of a recession in the U.S. next year will be substantially increased. (more…)

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