US financial firms call for urgent action on fiscal cliff

18 Oct 12
Failing to avoid the US ‘fiscal cliff’ could have grave consequences for both the country’s economy and global financial markets, according to the heads of 16 of the US’s biggest financial services firms.

By Nick Mann | 18 October 2012

Failing to avoid the US ‘fiscal cliff’ could have grave consequences for both the country’s economy and global financial markets, according to the heads of 16 of the US’s biggest financial services firms.

In a joint letter, they urged US President Barack Obama and Congress to finalise a cross-party agreement to avoid the combination of spending cuts and tax increases that will otherwise kick in automatically next January.

‘At a time when economic growth is less than 2%, and with nearly 25 million Americans either out of work or underemployed, the still fragile US economy cannot sustain – and the American people do not deserve – the impact of more gridlock in Washington,’ said the chief executives of firms including Bank of America, Citigroup and UBS.

They added:  ‘We urge you to negotiate a bipartisan agreement as quickly as possible to prevent us from going over the fiscal cliff so that we can avoid the damage to the economy and the markets that inaction will cause.

‘The consequences of inaction – for stability in global financial markets, for economic growth, for millions of Americans still without work, and for the financial circumstances of American businesses and households – would be very grave.’

Both the Federal Reserve and the Congressional Budget Office have warned that a failure to agree a new package of spending policies could send the US economy into recession.

In their letter, the chief executives, writing as the Financial Services Forum, warned that the fiscal cliff could also trigger a downgrade of the US’ triple A rating with ratings agency Moody’s. The rating on US debt has already been downgraded by Standard & Poor’s, and the letter warned that if Moody’s followed suit it could lead to ‘significantly higher’ interest rates.

‘Higher interest payments would worsen our nation’s fiscal burden and likely increase uncertainty and instability in global financial markets,’ the chief executives state.

Once the fiscal cliff is avoided, the US government must enact legislation that ‘truly restores’ the country’s long-term fiscal soundness.

‘The US economy and the businesses and households that depend on it need your help,’ they added. ‘Even more important, the solvency, productive capacity and stability of the US, as well as its moral authority as a global leader, require that its fiscal challenges be credibly met.’

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