The US economy is likely to fall over a “fiscal cliff” at the start of next year because Washington will be too divided to stop it, Joseph Stiglitz, one of the world’s leading economists, has warned
America faces a combination of tax increases and spending cuts in January which risk plunging the world’s biggest economy back into recession if they are all allowed to happen, he said.
“There are so many political battles ahead that the likelihood we avoid all of these elements that will then avoid the fiscal cliff is very problematic,” Mr Stiglitz told The Sunday Telegraph. “It’s a real danger.”
The warning comes as concerns grow that the US will embark on a fiscal squeeze that economists estimate will be between 3.5pc and 4pc of the country’s gross domestic product. By contrast, the International Monetary Fund has said that Britain’s fiscal contraction amounted to 1.7pc of GDP last year and a further 1.6pc is due this year.
“It’s unambiguously the case that these measures will slow down growth,” said Mr Stiglitz. “If there is European turmoil, there is a significant probability of going into a recession.”
In his new book, The Price of Inequality, Mr Stiglitz argues that growing gaps in wealth and income in the US pose a rising threat to the country’s economy and democracy.
“I am very worried,” Mr Stiglitz said. “It is something to which we are marching very rapidly.”
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