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Fast Facts: ECONOMIC IMPACT OF THE FISCAL CLIFF

FACT: The fiscal cliff consists of dramatic tax increases and automatic spending cuts scheduled to go into effect on January 1, 2013. FACT: The fiscal cliff would remove approximately $600 billion from the economy in 2013 (twice the projected growth in U.S. GDP this year) and more than $8 trillion over the next ten years. FACT: The Congressional Budget Office projects that the U.S. economy will go into a recession in 2013 (including real GDP contracting by 2.9% in the first quarter of 2013 and an unemployment rate over 9%) if Congress and the Administration do not address the fiscal cliff before the end of the year. FACT: Many independent groups are speaking out about the negative economic impact of going over the fiscal cliff. Moreover, businesses are saying that the uncertainty surrounding the fiscal cliff is negatively impacting their lending, hiring, and company growth right now. Failure to reach even a temporary arrangement to prevent the fiscal cliff and a repeat of the August 2011 debt ceiling episode would mean that the general election had not resolved the political gridlock in Washington and would probably result in a sovereign rating downgrade by Fitch. Fitch Ratings. November 7, 2012. If <fiscal> negotiations fail to produce policies that lead to debt stabilization and ultimately reduction, then we expect to lower the rating, probably to Aa1. Moodys Investors Service. November 7, 2012. If the U.S. falls off the fiscal cliff, it will take most of the decade for economic activity and employment levels to recover from the fiscal shock. There will be a recession in 2013 and dramatically slowed growth in 2014. More than 6 million jobs will be lost; the unemployment rate will be more than 11 percent; and there will be a cumulative 12.8 percent drop in GDP. National Association of Manufacturers. October 26, 2012. Economists from member companies of The Financial Services Roundtable convened on October 25th and unanimously agreed the fiscal cliff is imposing a negative drag on business lending, hiring, spending, and investment right now. The Financial Services Roundtable. October 25, 2012.

November 2012

Chief executives from 80 big-name U.S. corporations have banded together in the Campaign to Fix the Debt, ringing the opening bell at the NYSE and urging policymakers to deal with Americas out-of-control national debt by forging a comprehensive, bipartisan deal, not by going over the fiscal cliff. Campaign to Fix the Debt. October 25, 2012. At the end of the day, the United States is the biggest economy in the world and the dollar is the reserve currency in the world. I think it behooves us to act in a much more responsible way <with respect to the fiscal cliff.> Lloyd Blankfein, CEO Goldman Sachs. October 24, 2012. General Electric refinanced $5 billion of bonds reaching maturity early next year to avoid any market downturn ahead of the looming fiscal cliff. General Electric. October 22, 2012. Fifteen CEOs of the largest banks in the U.S. sent a letter to the President and to Congress, saying, 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. The Financial Services Forum. October 18, 2012. 42% of fund managers report that the fiscal cliff is their number one investment risk up from 35% in September and 26% in August. Bank of America Merrill Lynch. October 16, 2012. U.S. Bancorp in Minneapolis lowered its loan-growth expectations for the fourth quarter to reflect borrower uncertainty about the election, the fiscal cliff and the overall economic environment. Richard Davis, CEO U.S. Bank. October 17, 2012. 61% of American clients say the fiscal cliff is affecting their hiring plans. J.P. Morgan. October 6, 2012. Macro Risk Advisors October survey of market uncertainty factors shows the risk most cited by U.S. investors as relevant to market conditions is the fiscal cliff and upcoming elections. Macro Risk Advisors. October 2012. It would be smart to at least temporarily stop the full implementation of spending cuts, which would cause a lot of angst. Blackrock Investment Institute. October 2012. 87% of business economists believe that uncertainty about fiscal policy is holding back the economic recovery. National Association for Business Economics. September 27, 2012.

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We expect that the S&P 500 will fall sharply following the election when investors finally recognize the serious possibility that the fiscal cliff problem will not be solved in a smooth fashion. Goldman Sachs Global Economics, Commodities and Strategy Research team, September 25, 2012. In our view, the U.S. economy is being hit with an uncertainty shock because of the looming fiscal cliff. Our forecast assumes that the uncertainty shock slows growth to 1.0 percent in the fourth quarter of this year. Bank of America Merrill Lynch, September 24, 2012. Despite individual bank improvements, outlook for bank stocks is negative, predominately due to a challenging domestic operating environment, characterized by low interest rates, high unemployment, weak economic growth and uncertainty over US fiscal policy. Moodys Investment Outlook for Banks. September 13, 2012. No amount of quantitative easing can offset the impact of the fiscal cliff. Federal Reserve Chairman Ben Bernanke. September 13, 2012. The sooner uncertainty is eliminated, the better. Doug Elmendorf, Director of the Congressional Budget office. August 22, 2012. More than 40% of companies cite the fiscal cliff as a major reason for their spending restraint. Morgan Stanley. August 5, 2012. Small business owners rated the severity of 75 business issues. Uncertainty about the economy ranked second while uncertainty about government policy ranked fourth, followed by unreasonable government regulations (fifth); federal taxes on business income (sixth); tax complexity (seventh), and; frequent changes in federal tax laws and rules (eighth). For perspective, securing long term funding was 56th. National Federation of Independent Business. August 2012. Nine out of ten small businesses are concerned about Congress ability to reach consensus on the fiscal cliff; 59% say failure to address the fiscal cliff will have a direct impact on their companys growth. U.S. Chamber of Commerce. July 16, 2012.

FACT: Economic output would be greater and unemployment lower in 2013 if the fiscal cliff were addressed before the end of the year, according to analysis from the Congressional Budget Office.

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November 2012