by Calculated Risk on 9/14/2012 08:52:00 PM

An excerpt from a Goldman Sachs research note by Alec Phillips today: The Fiscal Cliff Moves to Center Stage

While we are hopeful that lawmakers will manage to reach an agreement before year-end, we expect that the road to such an agreement will be a bumpy one.

Ahead of the election, lawmakers seem unlikely to reach any sort of compromise on major tax or spending policies, particularly now that the window for a legislative agreement is essentially closed. Once the election results are known, lawmakers will work toward compromise, but members of both parties have an incentive to make the threat of “falling off the cliff” appear as credible as possible, so a resolution in November, or even early December, seems unlikely. Indeed, under a status quo election outcome, for example, a decision on even a short-term extension of expiring policies seems unlikely until late December, since political compromise would presumably come only after all other options have been exhausted.

... we think there is at least a one in three likelihood that lawmakers fail to agree by December 31. ... if a deal is reached by the end of the year it may not provide much certainty in 2013. After all, the debt limit may still need to be raised, and the since the most likely scenario seems to be a short-term extension of fiscal cliff-related policies, the risks from fiscal policy seem likely to continue into 2013, regardless of how the fiscal cliff is dealt with at year end.

I've just been ignoring the "fiscal cliff" until after the election. I suspect some sort of deal will be reached - but you never know.

Meanwhile, here is an animated version of Merle Hazard's "Fiscal Cliff"