Plunging Over the Fiscal Cliff

November 15th, 2012 | Blog, News

Within less than five hours after the completion of this month’s U.S. Elections, the media shifted focus to the topic of the U.S. “plunging over the fiscal cliff”.  Everyone knows that cliffhanging can be dangerous.   What does this mean? Why should we care about this in our business?

What does it mean?

Various economists have provided lengthy explanations to explain the metaphor, “Plunge over the fiscal cliff”. According to Thomas Kenny,, “Fiscal cliff” is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

On December 31, 2012, at midnight, the most important government deadline date, laws that affect payroll tax cuts for workers, tax breaks for businesses, taxes related to President Obama’s health care law and various spending cuts take effect. As“Cliff” indicates an immediate disaster there is no surprise that this situation will create tremendous business uncertainty.

What does all this mean for the steel industry?

At November’s American Metal Market (AMM) 6th Annual Steel Scrap Conference, Keynote Speaker, Tamara Lundgren. Schnitzer Steel Industries, President and Chief Executive Officer, is quoted as saying “This is madness. The only reason we are perched on a ledge is that our legislators walked us out there themselves”.

According to Ms Lundgren if the country goes over the cliff, it will permanently lose 6 million jobs by 2012. This is based on estimates from the National Association of Manufacturers. Moreover, every two manufacturing jobs create one spin off job. She also reminded her audience that policies that support affordable energy supply, infrastructure development, and relaxed business regulation are important for growth of the steel industry. Referring to global infrastructure spending, she indicated that China invests 9%/year in infrastructure, the U.S. invests 2% and Europe invests 5%.  Big spending on infrastructure means greater demand for steel in bridges, airports and public buildings which helps our industry.

Spending on Infrastructure in Canada

An article in the Winnipeg Free Press last month written by Chris Lorenc, President of the Manitoba Heavy Construction Association viewed Canada in a less dramatic way albeit “standing on a precipice”. He similarly stressed the importance of infrastructure spending and positioned it as Canada’s economic health program. This article quoted Informetrica findings that for every $10 billion invested in local infrastructure, 115,000 new jobs are created and nominal GDP grows by 1.3 per cent.  According to Statistics Canada, most Canadian infrastructure was built in the 1950s and will need to be rehabilitated or replaced within the next 10 to 15 years. Mr Lorenc also noted that Canadian investment in infrastructure of the past three years — as large as they have been — have merely dented our national infrastructure deficit. Whether cliff hanging or on a precipice, all can agree that infrastructure spending is critical to a country’s economic, fiscal and social health.

The various economist pundits are providing advice to the U.S. administration some indicating hang tough, others negotiate hard, while other suggest finding a middle ground. As our businesses and the steel industry watch and wait to see how successful the Obama administration will by the December 31st deadline. We can take some consolation that the impact resulting from the changes will take affect over the year and that Congress can legislate laws retroactively.

GB Resources Group is a leading Canadian based metals recycling company. We collect and recycle automobiles, home appliances, industrial machinery, manufacturing scrap and construction demolition from bridges, buildings and other obsolete structures. Call us at 416 240 0325 or 1866 398 7519 for all your recycling requirements.

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