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Fiscal cliff timeline: When should we panic?

House Speaker John Boehner hinted to fellow Republicans that they may be getting “fiscal cliff” talks as a present this holiday season.

House Speaker John Boehner hinted to fellow Republicans that they may be getting “fiscal cliff” talks as a present this holiday season. (No really, you shouldn’t have…)

On Wednesday, Boehner told reporters, “The president and I had a deliberate call yesterday and we spoke honestly and openly about the differences we face. The president has called for $1.4 trillion dollars in revenue that cannot pass the House or the Senate.” Not to play the role of GOP Scrooge, he added on a more positive note, “Listen I was born with a glass half full, I remain the most optimistic person in this town but we got some serious differences.”

Congress and the president have until New Year’s Eve to give the gift of a budget deal. If they fail to do so, budget cuts amounting to $1.2 trillion will go into effect on January 1 and income tax rates will increase.

Going off the “fiscal cliff” is far less dramatic than the nickname suggests--it’s more like stepping off a curb. But, if we go off said “curb” and stayed off by not doing the legislative repair work to fix to it -- the American economy could temporarily be pushed back into a recession.

Robert Reich, former U.S. labor secretary and a professor at the University of California, Berkeley, offered a worst-case timeline of events on Monday’s edition of The Last Word. “By probably the end of January, taxes are clearly going up on the middle class, also major program cuts in discretionary spending are kicking in. There’s not too much that the administration can do in terms of front-loading anymore because the end of January, you’ve got to--assuming that there's no deal at all–you’ve got to make some adjustment with regard to your spending and your spending is going to be cut,” he explained.

Based on his estimates, the negative impact of going off the cliff--and staying off the cliff--would really kick in by March or April. This delay in repairing the damage legislatively sets up the economy for a recession.

“We also have very powerful headwinds coming from Europe that is in recession because it bought into austerity economics--and that’s what we would be buying into in a very big way if we went off the fiscal cliff and nothing changed. We also have China that is slowing down," warned Reich. “Globally and also domestically, there is not enough demand to keep the economy going. And I would say the worst scenario of all--I don’t think it’s going to happen, but I think probably by March we’re going to see some real problems in the economy if nothing happens.”

Reich predicted that if we go off the cliff, negotiations to fix the problem would begin around “8:00 a.m. the morning of January 2nd."