Columbus was Wrong…the Earth IS Flat!

…At least with respect to much of the financial world which has proven so plane that in the case of the US, budget analysts have warned that the country is in danger of plunging off a ‘fiscal cliff’.

Ever marvel at the circus acrobats who to the amazement of the audience ‘walk the ball’ while maintaining near perfect balance; absent any fear of falling and even managing to smile and ‘pull’ funny faces in the process.

Since the 80s’ precisely that type of gymnastics has characterised the antics of both the private and public sector professionals in the worlds’ leading financial centres. These sprightly finance mavens ‘treaded’ the globe with clever products and services while ‘standing still’ in places like London and New York.

The world of finance is no longer spinning. Indeed, the assumption held by many that the ground beneath would gently fall away yielding fresh support; making the reach for the horizon a timeless and lucrative endeavour is, at least for the moment, in doubt.

In advance of what could be the largest tax increase in the history of the U.S, the Congressional Budget Office (CBO) has pointed to tough fiscal choices that can no longer be side-stepped.

According to the CBO it is likely that 2013 will see the end of:

  • tax cuts put in place during the Bush Administration;
  • the Alternative Minimum patch; and
  • payroll tax reduction.

This will also be accompanied by:

  • the halving of the child tax credit;
  • the return of estate taxes to 2001 levels; and
  • spending cuts of US$1.2trillion because of the failure of the Bipartisan Deficit Reduction Committee last year.

The ‘fiscal cliff’ that the US faces is that under current law increases in taxes and to a lesser extent reductions in spending will reduce the federal budget deficit dramatically between 2012-2013 but it will also dampen economic growth in the long-term.

This conundrum is exacerbated by the fact that the CBO also believes that reducing or eliminating the fiscal restraint though boosting economic growth in 2013 will have substantial economic costs over the long term if not accompanied comparable fiscal restraint in the future.

In London, the ‘dailies’ have reported another blow to its reputation as a global centre for capital markets because a third company has ‘shunned’ the London Stock Exchange (LSE).

Georgian Railway explained that it was shelving plans to raise £160M on the LSE by selling a quarter of its stock because of market turmoil. Twenty-four hours earlier, bid vehicle Tungsen put off its own £200m fundraising drive on the LSE. While two weeks before similar plans were postponed by Russian property investor O1 properties.

In fact the last time the LSE saw any major action was in May last year when Glencore raised $10bn.

This week too, in Asia, its currencies were sent into free-fall for a fourth consecutive week – representing the longest stretch for the year so far – fuelled by fears that Europe’s debt crisis and the possibility of the demise of the Euro because a Greek exit will ‘stall’ global economic recovery.

All of this makes you wonder if the world was ever ‘round’ in the first place.

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