Is America going to plunge off a fiscal cliff? That is the question starting to preoccupy Washington and Wall Street. For as fiscal issues move to centre stage in the 2012 election, America potentially faces three nasty shocks.

On January 1 2013, the Bush-era tax cuts are slated to expire, just as automatic fiscal tightening measures, agreed last year, kick in. That equates to about $400bn in tax increases and almost $200bn in spending cuts, more than 4 per cent of gross domestic product. If that was not bad enough, in early 2013 America will also hit the $16,400bn debt ceiling, which means the Treasury cannot issue more bonds unless Congress raises that limit.

Little wonder, then, that American business leaders expressed a slew of worries about that “cliff” during recent earnings calls. Or that many are appealing for bipartisan action to offset this potential shock. As Lloyd Blankfein, head of Goldman Sachs, recently observed “the fiscal cliff [creates] major uncertainty on the world”. Indeed, Morgan Stanley says that 40 per cent of companies are delaying investment because they fear that a big recession will loom if America hurtles off that ledge.