The deadline is approaching but it looks like a compromise will not be reached with regards to the fiscal cliff. Investors have speculated that the government would not make timely, intelligent decisions to adjust fiscal policy.
Instead they expect Congress and the White House to continue with their power games and let the economy suffer in 2013. Washington will become more serious in stabilizing the economy in 2014, when election nears.
They also predict that the government would not limit the growth of entitlement spending. ObamaCare would expand its coverage but would fail on the cost of US health care. Deficit would continue to grow and the debt would be out of control, just like what happened in most of Europe. Federal entitlement spending is bigger than federal revenue.
Since 2008, The Fed has printed money at unprecedented rates as part of its effort to improve the economy. This removes the value of savings. Bonds pay no interest in the short term. In the long term, printing money would result to high inflation and destroying the principal value of savings.
The inflow of capital to the US venture industry has already dropped by 40 percent over the last five years. That indicates lack of capital, which is said to be the entrepreneur’s form of fiscal cliff. It is observed that some of the best start-ups were founded in hard times. Some examples include Facebook in 2004 and Google during the collapse of tech bubble.
But for most start-ups, a bad economy is a big problem. Most tech companies sell component technologies to larger companies that build and market final products. In order to grow, they depend on these customers to make new products that use their technologies. When the market is down, these plans are placed on hold.
The venture capital community is mostly Republicans but there are lots of Democrats among them as well. They want a well-managed economy with predictable rules. They need a clear view of the economy in the long term.