As metaphors go, "fiscal cliff" must surely rank as one of the most striking ever coined. It implies something scary, irreversible, even fatal.

U.S. Federal Reserve chairman Ben Bernanke – normally one to confine his vernacular to dry "fedspeak" – must have known that when he first used the term in Congressional testimony earlier this year.

Bernanke wanted American politicians and their constituents to feel his alarm over this "cliff" and the economic danger it posed. To put it bluntly, he wanted them to get it.

Bernanke may have been aiming his remarks at a U.S. audience. But the whole world was listening... and with good reason. The general consensus seems to be that if the Americans don't figure out a way of avoiding the cliff, the potential damage caused by that failure on the Canadian and the global economy could be huge.

What exactly is this 'fiscal cliff'?

The fiscal cliff refers to the more than $600 billion US worth of spending cuts and tax hikes that are due to automatically take effect as of Jan. 1, 2013 if nothing is done to change the situation. Most of this $600 billion – about $500 billion – comes in the form of tax hikes that will hit the vast majority of Americans. The spending cuts amount to about $110 billion – half in defence.

It's important to point out that the use of the word "cliff," however effective, is a bit of a misnomer here. It's not as if the full impact of those spending cuts and tax hikes takes place on Jan. 1. They're spread out over the whole year. So all is not lost if an agreement takes a few months rather than a few weeks. Still, the metaphor's power persists.

Won't tax hikes and spending cuts reduce the U.S. deficit?

Absolutely. If Congress does nothing and the spending cuts and tax increases all go ahead, the non-partisan Congressional Budget Office estimates that the federal deficit in fiscal year 2013 would be chopped roughly in half, to $641 billion.

But deficit reduction of that speed and magnitude would come at a steep cost as hundreds of billions of dollars disappear from the economy. The CBO estimates that U.S. unemployment – now at 7.9 per cent – would balloon to 9.1 per cent by the end of 2013. The tax increases, due mainly to the end of a temporary cut in Social Security taxes and the expiry of the Bush-era tax cuts, would see almost 90 per cent of Americans pay more tax next year.

The Brookings Institution Tax Policy Center estimates that the tax bill for the average U.S. household would rise by almost $3,500. A tax hit that big, most experts agree, would be enough to give the U.S. consumer a severe case of shell-shock and drive the economy back into recession.

Why should Canada care?

The U.S. economy is, of course, not just a domestic enterprise. Bilateral trade between Canada and the U.S., for example, amounts to more than $1.7 billion a day. A financially healthy and confident U.S. consumer is vital for the sake of Canadian exporters. Realization of the full fiscal cliff could cause real pain on this side of the border, according to politicians and economists.

"The world would be immensely helped if the Americans could deal with this immediate issue," Prime Minister Harper said recently.

His finance minister echoed that concern, telling reporters that the fiscal cliff is the "biggest" international economic risk facing Canada and other countries.

"Were the entire fiscal cliff risk to become reality, the effect on U.S. GDP, according to the Americans themselves, would be four to five per cent, which would put the U.S. economy into recession quite quickly and the Canadian would follow shortly thereafter," Jim Flaherty warned the day after the U.S. election. "We’re all concerned that it’s an immediate problem within the next 60 days that needs to be dealt with."

Economists at TD Bank estimate that failure to reach any agreement to avert the cliff would shave 1.2 per cent to 1.8 per cent off Canada's real GDP in 2013. Under this scenario, Canada would just barely manage to avoid a recession.

TD notes that U.S. tax hikes have a bigger impact on Canadian exports than spending cuts, which tend to matter more domestically. "This is because Canadian trade with the U.S. is largely concentrated in consumer goods and business investment – items which will likely be hit harder by an increase in taxes," says TD deputy chief economist Derek Burleton.

Can the cliff be avoided?

Given the apparent stakes, you'd think the president and the Congress would be able to agree on some compromise so the fragile economic recovery wouldn't be derailed. But they've been trying to do exactly this for the better part of two years. The Republican-dominated House of Representatives has wanted no part of a solution that would see any tax increases. And while they're in favour of spending cuts, they're not as enthusiastic about heavy cuts in defence spending. Democrats, for their part, want the Republicans to agree on higher taxes for those making above $200,000.

After the Nov. 6 election, both camps made neighbourly noises about working with the other side. Many observers do think that some compromise will be worked out – either in the next few weeks, or early in the new year. The thinking here is that the political and economic consequences of driving off the cliff would simply be too severe. So look for a lot of last-minute negotiating on Capitol Hill.

But lingering gridlock on this and many other issues is still a possibility. The fact that the Dow Jones industrial average took its biggest plunge of the year the day after the election showed that investors are worried that the political deadlock will continue, hobbling growth and leading to even more market volatility.

Also on HuffPost:

Loading Slideshow...
  • PRO: Potential Energy Independence

    Estimates by the <a href="http://www.eia.gov/pub/oil_gas/natural_gas/data_publications/crude_oil_natural_gas_reserves/current/pdf/arrsummary.pdf" target="_hplink">United States Department of Energy</a> put the number of recoverable barrels of shale gas at around 1.8 trillion. To put that into perspective, Saudi Arabia is estimated to have roughly <a href="http://www.opec.org/opec_web/en/data_graphs/330.htm" target="_hplink">2.6 trillion barrels of oil reserves</a>. Christopher Booker writes for <em>The Telegraph</em><a href="http://www.telegraph.co.uk/comment/columnists/christopherbooker/8500496/Shale-gas-could-solve-the-worlds-energy-problems.html" target="_hplink"></a> that there are enough world reserves to "keep industrialised civilisation going for hundreds of years"

  • CON: Water Pollution

    A <a href="http://switchboard.nrdc.org/blogs/amall/incidents_where_hydraulic_frac.html" target="_hplink">blog post by the Natural Resource Defense Council</a> explains that "Opponents of such regulation [of fracking] claim that hydraulic fracturing has never caused any drinking water contamination. They say this because incidents of drinking water contamination where hydraulic fracutring is considered as a suspected cause have not been sufficiently investigated." It then goes on to list more than two dozen instances of water pollution to which hydraulic fracking is believed to have contributed. A <a href="http://insideclimatenews.org/news/20111104/gasfrac-propane-natural-gas-drilling-hydraulic-fracturing-fracking-drinking-water-marcellus-shale-new-york" target="_hplink">new waterless method of fracking</a> has been proposed, but environmentalists are skeptical.

  • CON: Leaks More Emissions Than Coal

    Methane is a greenhouse gas and <a href="http://www.ucsusa.org/clean_energy/technology_and_impacts/energy_technologies/how-natural-gas-works.html#enviroimpacts" target="_hplink">major component of shale's carbon footprint</a>. Cornell Professor Robert Howarth said about a study he conducted, "Compared to coal, the footprint of shale gas is at least 20 percent greater and perhaps more than twice as great on the 20-year horizon and is comparable when compared over 100 years."

  • PRO: Burns Cleaner Than Other Fossil Fuels

    <a href="http://www.scientificamerican.com/article.cfm?id=natural-gas-could-serve-as-bridge-fuel-to-low-carbon-future" target="_hplink">Researchers at MIT found that</a> replacing coal power plants with natural gas plants could work as part of a plan to reduce greenhouse emissions by more than 50 percent.

  • CON: Hydraulic Fracking Has Been Linked To Earthquakes

    <a href="http://oilprice.com/Energy/Natural-Gas/U.S.-Government-Confirms-Link-Between-Earthquakes-and-Hydraulic-Fracturing.html" target="_hplink">Several earthquakes both in the U.S. and abroad </a> have been linked to the hydraulic fracturing process. One British company, <a href="http://www.cuadrillaresources.com/cms/wp-content/uploads/2011/11/Cuadrilla-Resources-Press-Release-02-11-11.pdf" target="_hplink">Cuadrilla Resources</a>, admitted in a report that its hydraulic fracturing process well "did trigger a number of minor seismic events."

  • PRO: Jobs

    <a href="http://www.treehugger.com/fossil-fuels/facts-on-fracking-pros-cons-of-hydraulic-fracturing-for-natural-gas-infographic.html" target="_hplink">The industry currently employs more than 1.2 million people</a> in the U.S., and the Department of Energy estimates that natural gas resources have increased nearly 65 percent due to fracking, according to a TreeHugger graphic. Additionally, <a href="http://www.bu.edu/energy/files/2011/07/Fracking-article-Sept-14-2011.pdf" target="_hplink">the gas industry accounts for about $385 billion</a> in direct economic activity in the country, a <em>Nature</em> piece reports.

  • CON: Companies Don't Have To Disclose Chemicals Used In Process

    <a href="http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/wells_hydroreg.cfm" target="_hplink">Fracking is exempt from the Safe Drinking Water Act of 2005</a>, thus allowing companies to conceal the chemicals used in the process.

  • PRO: Buys Time To Develop Renewable Energy

    Former chief of staff to President Clinton and former head of the Center for American Progress <a href="http://www.businessweek.com/magazine/could-shale-gas-reignite-the-us-economy-11032011_page_2.html" target="_hplink">John Podesta says natural gas can serve</a> "as a bridge fuel to a 21st century energy economy that relies on efficiency, renewable sources, and low-carbon fossil fuels."

  • CON: Requires Large Amounts Of Water

    The fracking process can require around <a href="http://www.hydraulicfracturing.com/Water-Usage/Pages/Information.aspx" target="_hplink">five million gallons</a> of water. In some cases<a href="http://www.treehugger.com/fossil-fuels/facts-on-fracking-pros-cons-of-hydraulic-fracturing-for-natural-gas-infographic.html" target="_hplink"> less than a third of that water is recovered</a>.



Loading Slideshow...
  • 10. Encana

    Brand value: $418 million Photo: Doug Suttles, president and CEO of Encana Natural Gas (The Canadian Press) Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>

  • 9. Canadian Natural Resources

    Brand value: $702 million Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>

  • 8. Syncrude

    Brand value: $933 million Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>

  • 7. Suncor

    Brand value: $936 million Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>

  • 6. Cenovus

    Brand value: $1.109 billion Photo: Brian Ferguson, president and CEO of Cenovus Energy (The Canadian Press) Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>

  • 5. TransCanada

    Brand value: $1.47 billion Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>

  • 4. Husky

    Brand value: $1.607 billion Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>

  • 3. Petro-Canada

    Brand value: $1.831 billion Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>

  • 2. Esso (Imperial Oil)

    Brand value: $1.849 billion Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>

  • 1. Enbridge

    Brand value: $4.726 billion Source: <a href="http://www.brandfinance.com/offices/canada" target="_hplink">Brand Finance Canada</a>



Loading Slideshow...
  • Syncrude Upgrader and Oil Sands

    The refining or upgrading of the tarry bitumen which lies under the oil sands consumes far more oil and energy than conventional oil and produces almost twice as much carbon. Each barrel of oil requires 3-5 barrels of fresh water from the neighboring Athabasca River. About 90% of this is returned as toxic tailings into the vast unlined tailings ponds that dot the landscape. Syncrude alone dumps 500,000 tons of toxic tailings into just one of their tailings ponds everyday.

  • Boreal Forest and Coast Mountains / Atlin Lake, British Columbia | 2001

    This area, located in the extreme northwest of British Columbia, marks the western boundary of the Boreal region. On the border of the Yukon and Southeast Alaska, the western flank of these mountains descends into Alaska's Tongass Rainforest and British Columbia's Great Bear Rainforest. Far from the oil sands, the greatest remaining coastal temperate and marine ecosystem is imminently threatened by the proposal to build a 750-mile pipeline to pump 550,000 barrels per day of oil sands crude to the coast. Once there, it would be shipped through some of the most treacherous waters, virtually assuring an ecological disaster at some point in the future.

  • Tailings Pond in Winter, Abstract #2 / Alberta Tar Sands | 2010

    Even in the extreme cold of the winter, the toxic tailings ponds do not freeze. On one particularly cold morning, the partially frozen tailings, sand, liquid tailings and oil residue, combined to produce abstractions that reminded me of a Jackson Pollock canvas.

  • Aspen and Spruce | Northern Alberta | 2001

    Photographed in late autumn in softly falling snow, a solitary spruce is set against a sea of aspen. The Boreal Forest of northern Canada is perhaps the best and largest example of a largely intact forest ecosystem. Canada's Boreal Forest alone stores an amount of carbon equal to ten times the total annual global emissions from all fossil fuel consumption.

  • Tar Sands at Night #1 | Alberta Oil Sands | 2010

    Twenty four hours a day the oil sands eats into the most carbon rich forest ecosystem on the planet. Storing almost twice as much carbon per hectare as tropical rainforests, the boreal forest is the planet's greatest terrestrial carbon storehouse. To the industry, these diverse and ecologically significant forests and wetlands are referred to as overburden, the forest to be stripped and the wetlands dredged and replaced by mines and tailings ponds so vast they can be seen from outer space.

  • Dry Tailings #2 | Alberta Tar Sands | 2010

    In an effort to deal with the problem of tailings ponds, Suncor is experimenting with dry tailings technology. This has the potential to limit, or eliminate, the need for vast tailings ponds in the future and lessen this aspect of the oil sands' impact.

  • Tailings Pond Abstract #2 | Alberta Tar Sands / 2010

    So large are the Alberta Tar Sands tailings ponds that they can be seen from space. It has been estimated by Natural Resources Canada that the industry to date has produced enough toxic waste to fill a canal 32 feet deep by 65 feet wide from Fort McMurray to Edmonton, and on to Ottawa, a distance of over 2,000 miles. In this image, the sky is reflected in the toxic and oily waste of a tailings pond.

  • Confluence of Carcajou River and Mackenzie River | Mackenzie Valley, NWT | 2005

    The Caracajou River winds back and forth creating this oxbow of wetlands as it joins the Mackenzie flowing north to the Beaufort Sea. This region, almost entirely pristine, and the third largest watershed basin in the world, will be directly impacted by the proposed Mackenzie Valley National Gas Pipeline to fuel the energy needs of the Alberta Oil Sands mega-project.

  • Black Cliff | Alberta Oil Sands | 2005

    Oil sands pit mining is done in benches or steps. These benches are each approximately 12-15 meters high. Giant shovels dig the oil sand and place it into heavy hauler trucks that range in size from 240 tons to the largest trucks, which have a 400-ton capacity.

  • Oil Sands Upgrader in Winter| Alberta Oil Sands | 2010

    The Alberta oil sands are Canada's single largest source of carbon. They produce about as much annually as the nation of Denmark. The refining of the tar-like bitumen requires more water and uses almost twice as much energy as the production of conventional oil. Particularly visible in winter, vast plumes of toxic pollution fill the skies. The oil sands are so large they create their own weather systems.

  • Boreal Forest and Wetland | Athabasca Delta Northern Alberta | 2010

    Located just 70 miles downstream from the Alberta oil sands, the Athabasca Delta is the world's largest freshwater delta. It lies at the convergence of North America's four major flyways and is a critical stopover for migrating waterfowl and considered one of the most globally significant wetlands. It is threatened both by the massive water consumption of the tar sands and its toxic tailings ponds.

  • Tar Pit #3

    This network of roads reminded me of a claw or tentacles. It represents for me the way in which the tentacles of the tar sands reach out and wreak havoc and destruction. Proposed pipelines to American Midwest, Mackenzie Valley, and through the Great Bear Rainforest will bring new threats to these regions while the pipelines fuel new markets and ensure the proposed five fold expansion of the oil sands.

  • <strong>NEXT -----> Craziest Pictures of the oilsands</strong>

  • Syncrude's Mildred Lake Upgrader, part of The Syncrude Project complex for oil sands processing, is pictured Monday, March 8, 2006 in Fort McMurray, Alberta, Canada.

  • The Syncrude oil sands extraction facility is reflected in a lake reclaimed from an old mine near the town of Fort McMurray in Alberta, Canada on October 22, 2009.

  • A disused mining machine on display in front of the Syncrude oil sands extraction facility near the town of Fort McMurray in Alberta on October 22, 2009.

  • Tailings pond in winter.

  • Syncrude upgrader.

  • Dry tailings.

  • The Suncor oilsands operation uses trucks that are 3 stories tall, weigh one million pounds, and cost 7 million dollars each.

  • Oilsands at night.

  • A tailings pond.

  • Black Cliff in the Alberta oilsands.

  • Oilsands upgrader in winter.

  • Oilsands extraction.

  • Oil sits on the surface at a Suncor Energy Inc. oilsands mining operation near Fort McMurray, Alberta, Canada, on Tuesday, Aug. 13, 2013. Photographer:

  • A large oil refinery along the Athabasca River in Alberta's Oilsands. Fort McMurray, Alberta.

  • Oils mixes with water at a tailings pond at a Suncor Energy Inc. oilsands mining operation near Fort McMurray, Alberta, Canada, on Tuesday, Aug. 13, 2013.

  • Fort McMurray is in the heart of the world's biggest single oil deposit - the Athabasca Oil Sands, and the oil is extracted by surface mining and refined in the region. The oil production is at the heart of the economy.

  • In this Aug. 5, 2005 file photo, the Syncrude upgrader spreads out towards the horizon at the company's oil sands project in Ft. McMurray, Alberta, Canada.

  • This Tuesday, July 10, 2012 aerial photo shows a Nexen oil sands facility near Fort McMurray, Alberta, Canada.

  • This Sept. 19, 2011 aerial photo shows an oilsands facility near Fort McMurray, in Alberta, Canada.

  • This Sept. 19, 2011 aerial photo shows an oilsands tailings pond at a mine facility near Fort McMurray, in Alberta, Canada.

  • This Sept. 19, 2011 aerial photo shows an oilsands tailings pond at a mine facility near Fort McMurray, in Alberta, Canada.

  • The Syncrude extraction facility in the northern Alberta oil sand fields is reflected in the pool of water being recycled for re-use.

  • A night view of the Syncrude oil sands extraction facility near the town of Fort McMurray in Alberta Province, Canada on October 22, 2009.

  • Aerial view of a lake and forests in the vicinity of oil sands extraction facilities near the town of Fort McMurray in Alberta, Canada on October 23, 2009.

  • Workers use heavy machinery in the tailings pond at the Syncrude oil sands extraction facility near the town of Fort McMurray in Alberta , Canada on October 25, 2009.

  • Fort McMurray is in the heart of the world's biggest single oil deposit - the Athabasca Oil Sands, and the oil is extracted by surface mining and refined in the region. The oil production is at the heart of the economy.

  • A large oil refinery in Alberta's Oilsands project. Fort McMurray, Alberta.

  • Next: Alberta Oil Spills

  • CFB Cold Lake, CNRL

    A bitumen leak was reported at a Canadian Natural Resources oilsands operation in the weapons range part of the RCAF base in June 2013.

  • CFB Cold Lake, CNRL

    Company officials said the leak - at what it calls its Primrose operation - was caused by faulty machinery at one of the wells, affected an area of approximately 13.5 hectares and released as much as 3,200 litres of bitumen each day.

  • CFB Cold Lake, CNRL

    Preliminary tallies put the death toll from the leak at 16 birds, seven small mammals and 38 amphibians. Dozen were rescued and taken to an Edmonton centre for rehabilitation.

  • CFB Cold Lake

    As of early August 2013, more than 1.1 million litres of bitumen had been pulled from marshlands, bushes and waterways.

  • CFB Cold Lake, CNRL

    Although CNRL could not say when the leak may finally be stopped, it estimates it will likely cost more than $40 million to clean up.

  • <em>Click through for other recent spill in Alberta</em>

  • Plains Midstream

    Little Buffalo band member Melina Laboucan-Massimo scoops up July 13, 2012 what appears to oil from the pond shoreline near the site of a 4.5 million-litre Plains Midstream pipeline leak detected April 29, 2011. Photos taken at the site and released by Greenpeace of Alberta's second-worst pipeline spill suggest at least part of the site remains heavily contaminated despite company suggestions that the cleanup is complete.

  • Plains Midstream Canada

    A boat passes by a boom stretching out to contain a pipeline leak on the Gleniffer reservoir near Innisfail, Alta., Tuesday, June 12, 2012. Plains Midstream Canada says one of their non-functioning pipelines leaked between 1,000-3,000 barrels of sour crude near Sundre, Alberta, on June 7 and flowed downstream in the Red Deer river to the reservoir.

  • Plains Midstream Canada

    Debris pushes up against a boom as it stretches out to contain a pipeline leak on the Gleniffer reservoir near Innisfail, Alta., Tuesday, June 12, 2012.

  • Plains Midstream Canada

    A boom stretches out to contain a pipeline leak on the Gleniffer reservoir near Innisfail, Alta., Tuesday, June 12, 2012. Plains Midstream Canada says one of their non-functioning pipelines leaked between 1,000-3,000 barrels of sour crude near Sundre, Alberta, on June 7 and flowed downstream in the Red Deer river to the reservoir.