Jim Flaherty, Canada's Finance Minister, is reported as having said yesterday that if the America hits the so-called fiscal cliff on December 31 Canada will follow the U.S. into recession.

I believe that out of necessity U.S. politicians reluctantly will cooperate before, and perhaps even after December 31 (retroactive changes to scheduled deficit reductions and tax changes could always be made after December 31) to forestall U.S. fiscal cliff issues. However, consider that U.S. Federal deficit and debt ceiling (a separate issue from the 'fiscal cliff') eventually have to be dealt with.

I don't see an obvious solution, other than further postponement, to America's monthly net trade deficit and Federal deficit issues. Overspending always must lead to problems. In a 'fiat currency and globalized world', I believe this to be true even for the country enjoys the privilege of being able to print the world's reserve currency.

Note my specific use of the word 'enjoys' in the context of the world's reserve currency. America is not guaranteed that privilege, and no one in my view should think that it is.

You might want to read Economists Worry About Fiscal Cliff Resolution, from the Wall Street Journal's Real Time Economics Blog. Written after Tuesday's U.S. election results were known, the article cites the comparatively little change in the makeup of the Office of the President, the House, and the Senate as being worrisome in the context of bi-partisan cooperation in resolving fiscal cliff (and I assume 'debt ceiling') issues.

Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining and Oil & Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at icampbell@srddi.com

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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