Industry economists agree that should the U.S. plunge off thefiscal cliff Dec. 31, credit unions probably won't see any illeffects right away.

However, the Credit Union Times spoke with fiveindustry economists who identified three ways a Grand Bargain, orlack of one, could have a big impact on credit union balancesheets.

Less Lending

CUNA Vice President of Economics and Statistics Mike Schenk saideven if a Grand Bargain combination of tax increases and spendingcuts is reached, the result would “choke off the housing recoveryand push us back into recession.“

That's not good news, but Schenk added that doing nothing wouldonly intensify a current lack of clarity about the future, whichwould hamper both business confidence and consumer confidence.

“If that happens, people will reduce spending on big ticketitems, which means less lending for credit unions,” Schenk said.

NCUA Chief Economist John Worth agreed, recalling that when thefederal government created an impasse in 2011 as it debated asolution to the debt ceiling, consumer confidence plummeted from arating of 70 in June to just 55 in August.

Although Worth said he's observed consumer interest in thefiscal cliff doesn't seem as great as it was during the debtceiling impasse, it would still impact consumers' view of thefuture and result in less consumer spending and a weakereconomy.

NAFCU Chief Economist David Carrier noted that because ofeconomic slowdowns in China and Europe's ongoing problems, theUnited States is actually driving the world economy. Should thealready fragile economy here take another hit, the entire worldwould feel it, he said.

California Credit Union League Chief Economist Dwight Johnstonlikened the U.S. as the driver of the world economy to the recentsnail's pace transfer of the Space Shuttle Endeavor from LosAngeles International Airport to the California Science Center,where it will be on display.

“In some places, it was moving so slowly, you couldn't even tellit was moving at all,” Johnston said, “kind of like the worldeconomy.”

Brian Turner, director and chief strategist at CatalystStrategic Solutions, a subsidiary of Catalyst CorporateFCU, said the way the fiscal cliff solutionimpacts job growth will have a bigger impact than a decrease inconsumer confidence or higher taxes. Consumers aren't spending lessmoney because they're anticipating a smaller or no tax refund, butrather, job insecurity.

“I don't care what people are feeling, it's what they're doingthat's important,” Turner said. “Even though they are feelingbetter, they're still not spending.” MoreLiquidity … Or Not

Worth said liquidity could go either way: consumers could take a flight ofsafety out of equities markets and into federally insured moneymarket accounts. However, if the economy sours and taxes increase,they would have less money to deposit, so it could be a wash.Turner agreed that liquidity is unlikely to be affected by fiscalcliff issues, because even if taxpayers have fewer refunds andyear-end bonuses to deposit, loan outflow is still weak, soseasonal liquidity trends and loan-to-share ratios wouldn't begreatly impacted.

Schenk said a double dip recession could mean more liquidity, asnervous consumers increase savings and borrow less. CU Tax ExemptionThreatened

Carrier and NAFCU lobbyists Brad Thaler said they're concernedabout the potential for the credit union tax exemption to get caught up in fiscal cliffnegotiations.

While they don't expect the topic of credit unions to come updirectly in the fiscal cliff debate, the exemption could be “boxedin” if politicians agree to cut a set number of tax expenditurestin 2013 and set up pick-and-choose scenario next year.

“We don't want to get stuck inside a tax reform box and have tofight our way out,” Thaler said.

Carrier said in terms of the effect on credit union balancesheets, taxation would take a bigger bite out of income thancorporate stabilization assessments.

Washington veteran Worth, who once headed up the Treasury'sOffice of Microeconomic Analysis, said that while credit unionscould make a more persuasive case for their tax exemption thanmany, not one line in the tax code is included by mistake, and“everybody thinks their tax expenditure, like their kid, is aboveaverage.”