Just Explain It: Why the Fiscal Cliff May Trigger a Recession

Lawmakers in Washington appear to be making little to no progress in avoiding the impending so-called fiscal cliff.  House Speaker John Boehner, R-Ohio, said Friday the negotiations are "almost nowhere." On Thursday Boehner rejected a proposal from the Obama administration saying that the Democrats need to "get serious about real spending cuts."
President Obama's offer continues to call for higher taxes on the wealthy and an extension of the payroll tax cut.   But Republicans say they will not agree to a plan that raises taxes.
As the country continues to head toward the fiscal cliff, this Just Explain It helps to make sense of what it is.
On December 31st, most of us would like to be thinking about a prosperous new year ahead…drinking bubbly and singing Auld Lang Syne with friends.  But there's a chance we could be singing a different tune if President Obama and Congress don't agree on measures to avoid the fiscal cliff.
First, let me explain what the fiscal cliff is.
The fiscal cliff refers to the potentially disastrous situation the U-S faces at the end of this year.  At midnight on December 31st, a number of laws are set to expire.  If the President and the Republicans don't reach an agreement before then, Americans could face broad government spending cuts and tax increases on January 1st.   The combined amount would total over 500 billion dollars. Those 500 billion dollars equal about three to four percent of the nation's entire gross domestic product.  This is what's referred to as the fiscal cliff.
If there isn't a resolution, here are the specifics of what will happen.
Taxes would go up for almost every taxpayer and many businesses. The Bush-era tax cuts, which tax relief for middle and upper-class tax payers, would be a thing of the past.  So would President Obama's payroll tax cut which added about a thousand dollars a year to the average worker's income.
Government spending would be slashed.  That means less money for most military, domestic and federal programs.  $26 billion in emergency unemployment-compensation would be gone. Medicare payments to doctors would be reduced by $11 billion. Federal programs would take the biggest hit.  They stand to lose a total of $65 billion.
If the fiscal cliff isn't avoided, some investors will be hit hard.  Those who receive qualified dividends could see the tax rate on those dividends go from 15% to almost 40% in 2013.
Many business owners believe going over the fiscal cliff will cripple the economy, triggering a deep recession.  They fear demand for their products or services will decrease because consumers will have less money to spend.  It also means that they won't be able to afford new hires or expand their businesses.   Since most Americans would be paying more in taxes, they'd be less inclined to make big purchases, like a home or a new car.
None of this is set in stone, but that's part of the problem.  Markets, businesses and people in general hate uncertainty. The fear of the unknown facing us at the beginning of next year is exactly why so many people are so worked up over the fiscal cliff.
Did you learn something? Do you have a topic you'd like explained?  Give us your feedback in the comments below or on twitter using #justexplainit.

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Decent jobs report despite slowdown in hiring pace

WASHINGTON (Reuters) - The pace of U.S. job growth slowed a bit in December, keeping the unemployment rate steady at 7.8 percent, but details of the Labor Department's U.S. employment report were fairly encouraging.
* Nonfarm payrolls increased 155,000, but job gains for the previous month were revised up to show 15,0000 more positions created than previously reported.
* Construction employment rebounded strongly, gaining 30,000 jobs after sagging 10,000 in November, reflecting increased residential construction activity as the housing market recovery gains traction.
* Manufacturing payrolls gained 25,000 after rising 5,000 in November. Manufacturing working hours increased, a positive sign for a sector that has been cooling in recent months. That helped to lift the overall average workweek to 34.5 hours from 34.4 hours in November.
* With workers putting in more time, the average hourly earnings increased 0.3 percent after rising by the same margin in November.
* More people entered the labor force, a sign of confidence in the jobs market, keeping the unemployment rate elevated. The household survey also showed a modest increase in employment, but more people reported they did not have jobs.
* The bad news is that government shed 13,000 jobs in December after a loss of 10,000 the prior month.
* Temporary help jobs, often seen as a harbinger for permanent hiring, fell in December and retail employment declined by 11,300 jobs after a hiring spree the previous months.

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Bank of America, other banks move closer to ending mortgage mess

CHARLOTTE/WASHINGTON (Reuters) - Bank of America Corp announced more than $14 billion of legal settlements over bad mortgages it sold to investors and flaws in its foreclosure process, taking the bank a step closer to ending the home loan problems that have dogged it for years.
About $3 billion of Bank of America's Monday's settlements were part of a larger $8.5 billion deal between 10 big mortgage lenders and regulators to end a loan-by-loan review of foreclosures mandated by the government.
Bank of America shares touched their highest level in nearly two years as investors called it a good step toward ending the company's multiple legal woes. The shares later retreated to close down 0.2 percent at $12.09.
Analysts have estimated that Bank of America has paid out some $40 billion for mortgage settlements since the crisis began. Most of those losses stem from its 2008 purchase of Countrywide Financial, once the largest subprime lender in the United States.
But the bank is moving closer to the day when it can stop worrying about mortgages and start focusing on growth, analysts and investors said.
"It's a step in the right direction in terms of trying to put these issues behind the company," said Jonathan Finger of Finger Interests Ltd, a Houston, Texas-based investment firm that owns 1.1 million of the bank's shares.
Besides the multibank foreclosure settlement, the second largest U.S. bank also announced about $11.6 billion of settlements with government mortgage finance company Fannie Mae to end allegations the bank improperly sold mortgages that later soured, and to resolve questions about foreclosure delays.
Bank of America had already set aside money to cover most of those settlements. The deal with Fannie wipes out 44 percent of the buy-back requests the bank faced as of the end of the third quarter. It also eliminates possible future repurchase requests on about $300 billion in loans.
Bank of America's home loan problems are far from over, though. It still needs court approval for an $8.5 billion settlement with private investors and it is locked in litigation with insurer MBIA Inc over mortgage-related claims.
The agreement also does not end a lawsuit the U.S. Justice Department brought against the bank last year over Countrywide and Bank of America loans sold to Fannie Mae and Freddie Mac, the agency said. The suit accuses Countrywide and Bank of America of causing losses to taxpayers of more than $1 billion.
"I think there is still quite a lot of litigation to go, and I don't think we'll see the end of this for some time," said Thomas Perrelli, a former top Justice Department official, speaking of industry wide legal issues stemming from the financial crisis.
BANKS SETTLE
The settlement Bank of America, Citigroup Inc, JPMorgan Chase & Co, Wells Fargo & Co and five other banks entered with regulators pays out up to $125,000 in cash to homeowners whose homes were being foreclosed when the paperwork problems emerged.
About $3.3 billion of the $8.5 billion settlement with the Office of the Comptroller of the Currency will be in cash, with the rest in changes to the terms of loans or mortgage forgiveness.
In April 2011, the government required banks that collect payments on mortgages, known as servicers, to review whether errors in the foreclosure process had harmed borrowers.
The review focused on foreclosures from 2009 and 2010 and looked at processes, including "robo-signing," where servicer employees or contractors signed documents without first reviewing them.
That loan-by-loan review proved slow and expensive, the OCC said.
The reviews had already cost more than $1.5 billion. They turned up evidence that around 6.5 percent of the loan files contained some error requiring compensation, but most of those errors involved potential payouts much less than $125,000, OCC officials said.
Other banks involved in the settlement include MetLife Bank, Aurora Bank FSB, PNC Financial Services Group Inc, Sovereign Bank NA, SunTrust Banks Inc and U.S. Bancorp.
Wells Fargo said its portion of the cash settlement will be $766 million, which will result in a $644 million charge when it reports fourth-quarter earnings on Friday. The bank said it will spend another $1.2 billion on foreclosure prevention actions, which will not result in additional charges.
Citigroup, which reports earnings next week, said it will take a $305 million charge for its cash payment portion of the settlement, while existing reserves would cover $500 million in loan forgiveness and other actions.
Housing advocates said they viewed the settlement as a positive move as it ends a flawed review process and provides some money, if limited, to consumers. But some advocates and lawmakers expressed dissatisfaction with the pact and suggested hearings could follow.
"I remain concerned that banks continue to avoid full accountability, and I believe that borrowers deserve more answers and transparency than the Federal Reserve and the OCC are currently willing to provide," said Elijah Cummings, the top Democrat on the House Oversight committee.
BOFA SELLS SERVICING RIGHTS
For Bank of America, the Fannie Mae deal was the much larger of Monday's agreements.
Fannie Mae and sibling Freddie Mac essentially buy mortgages from banks and package them into bonds for investors. But during the mortgage boom, banks sold loans to the two companies that Fannie Mae and Freddie Mac say should never have been sold because, for example, borrowers had misstated their income. The two mortgage finance companies are pushing banks to buy back the loans.
On Monday, Bank of America also said it was selling the rights to collect payments on about $306 billion of loans to Nationstar Mortgage Holdings and Walter Investment Management Corp. Reuters first reported on Friday that Bank of America was talking to Nationstar and Walter Investment.
Investors appear to have decided the bank is on the right track as its shares hit their highest level since May 2011 on Monday. When Warren Buffett came to the bank's rescue in August 2011 with a $5 billion investment, he received warrants for 700 million shares of stock at $7.14 per share.

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UPDATE 1-NHL-League owners approve new labor deal

* Players expected to ratify labor agreement on the weekend
* Bettman says he has no plans to step down as comissioner (Adds quotes, detail)
Jan 9 (Reuters) - The National Hockey League's (NHL) board of governors ratified the tentative labor deal on Wednesday, followed by Commissioner Gary Bettman's apology for dragging fans and sponsors through a four-month lockout.
Requiring a simple majority to pass, the 30 league owners voted unanimously to approve the 10-year deal that was agreed to early on Sunday after a marathon 16-hour bargaining session.
The NHL Players' Association is expected to vote on the collective bargaining agreement on Friday and Saturday.
If the players approve the deal it will remove the final obstacle standing in the way of what is expected to be a 48-game regular season that would begin Jan. 19.
The NHL said it will announce its schedule immediately after the agreement has been ratified by both parties.
After a rancorous 113-day lockout that cost both sides billions of dollars, players and owners have now turned their attention to mending fences with disgruntled fans and putting the focus back onto the ice.
"To the players, who were very clear they wanted to be on the ice and not negotiating labor contracts, to our partners who support the league financially and personally and most importantly to our fans that love and have missed NHL hockey, I am sorry," Bettman told reporters following the vote at a Manhattan hotel.
"I know an explanation or an apology will not erase the hard feelings that have built up of past few months but I owe you an apology nonetheless.
"We have a lot of work to do.
"The National Hockey League has a responsibility to earn back your trust and support whether you watch one game or every game and that effort begins today."
With training camps set to open on Sunday, Bettman would not elaborate on what plans the NHL has to make up with fans but said the league would take tangible steps and will be offering more than simple apologies.
"I think it's time to turn the page and look forward as quickly as possible," said Bettman. "It is in the process of being worked on and will be announced at the appropriate time.
"There will be outreach campaigns and efforts that will be made clear as we get closer to dropping the puck."
Having presided over three work stoppages during his time as commissioner, speculation swirled during the final days of the most recent lockout that Bettman had lost the confidence of owners and would soon be looking for new job.
But Boston Bruins owner Jeremy Jacobs offered Bettman and deputy commissioner Bill Daly a vote of confidence on Wednesday praising the NHL's two chief negotiators for their work.
Bettman also laughed off talk of his demise, saying he was not going anywhere.
"It's nothing more than unfounded speculation," said Bettman who will mark his 29th anniversary in charge of the NHL in February. "I am looking forward to continuing to grow this game on and off the ice as we have over the last 20 years.
"I think the opportunities are great and I'm excited to be part of them." (Reporting by Steve Keating in Toronto; Editing by Frank Pingue)

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League owners approve new labor deal

(Reuters) - The National Hockey League's (NHL) board of governors ratified the tentative labor deal on Wednesday, followed by Commissioner Gary Bettman's apology for dragging fans and sponsors through a four-month lockout.
Requiring a simple majority to pass, the 30 league owners voted unanimously to approve the 10-year deal that was agreed to early on Sunday after a marathon 16-hour bargaining session.
The NHL Players' Association is expected to vote on the collective bargaining agreement on Friday and Saturday.
If the players approve the deal it will remove the final obstacle standing in the way of what is expected to be a 48-game regular season that would begin January 19.
The NHL said it will announce its schedule immediately after the agreement has been ratified by both parties.
After a rancorous 113-day lockout that cost both sides billions of dollars, players and owners have now turned their attention to mending fences with disgruntled fans and putting the focus back onto the ice.
"To the players, who were very clear they wanted to be on the ice and not negotiating labor contracts, to our partners who support the league financially and personally and most importantly to our fans that love and have missed NHL hockey, I am sorry," Bettman told reporters following the vote at a Manhattan hotel.
"I know an explanation or an apology will not erase the hard feelings that have built up of past few months but I owe you an apology nonetheless.
"We have a lot of work to do.
"The National Hockey League has a responsibility to earn back your trust and support whether you watch one game or every game and that effort begins today."
With training camps set to open on Sunday, Bettman would not elaborate on what plans the NHL has to make up with fans but said the league would take tangible steps and will be offering more than simple apologies.
"I think it's time to turn the page and look forward as quickly as possible," said Bettman. "It is in the process of being worked on and will be announced at the appropriate time.
"There will be outreach campaigns and efforts that will be made clear as we get closer to dropping the puck."
Having presided over three work stoppages during his time as commissioner, speculation swirled during the final days of the most recent lockout that Bettman had lost the confidence of owners and would soon be looking for new job.
But Boston Bruins owner Jeremy Jacobs offered Bettman and deputy commissioner Bill Daly a vote of confidence on Wednesday praising the NHL's two chief negotiators for their work.
Bettman also laughed off talk of his demise, saying he was not going anywhere.
"It's nothing more than unfounded speculation," said Bettman who will mark his 29th anniversary in charge of the NHL in February. "I am looking forward to continuing to grow this game on and off the ice as we have over the last 20 years.
"I think the opportunities are great and I'm excited to be part of them."

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NHL owners approve new labor deal; players to vote

NEW YORK (AP) — NHL Commissioner Gary Bettman secured unanimous ownership support for the pending labor deal, then apologized to everyone hurt by the long lockout and said he isn't going anywhere.
The league's board of governors met in a Manhattan hotel Wednesday and overwhelmingly approved the agreement that was reached early Sunday on the 113th day of the lockout.
Bettman felt the full brunt of anger, especially from fans, during the four-month dispute that kept hockey off the ice. But he was contrite in announcing the latest step by the owners. He said he wants to look forward and not back at the mess created by the work stoppage.
"Most importantly to our fans, who love and have missed NHL hockey, I am sorry," Bettman said. "I know that an explanation or an apology will not erase the hard feelings that have built up over the past few months, but I owe you an apology nevertheless.
"As commissioner of the National Hockey League it sometimes falls upon me to make tough decisions that disappoint and occasionally anger players and fans. This was a long and extremely difficult negotiation — one that took a lot longer than anybody wanted. I know it caused frustration, disappointment and even suffering to a lot of people who have supported the National Hockey League in many different ways."
In his nearly 20 years as commissioner, Bettman has presided over three lockouts. One caused the cancellation of the 2004-05 season, another led to a 48-game season in 1995 — much like is expected for this season.
The latest lockout wiped out 510 games. Overall, 2,208 games have been lost by labor disputes during his tenure. But Bettman was quick to call any speculation he might consider stepping down from his post as "unfounded."
"I am looking forward to continuing to grow this game, both on and off the ice, as we have over the last 20 years," he said. "I think the opportunities are great, and I am excited to be a part of them."
Players are expected to vote on the deal Friday and Saturday. If a majority of the more than 700 members in good standing agree to the terms, training camps can open Sunday. A 48-game season is likely to begin Jan. 19.
The NHL and the union are still drafting a memorandum of understanding that must be signed before training camps open. The players' association wants as much of the document as possible to be completed before voting begins.
The union is busy calling players and agents to educate them about the changes and additions to the agreement. The vote will be done electronically.
There will be no more than seven days between the opening of camps and the start of the season, and no preseason games will be played. Teams will be challenged to be ready right from the start.
"It's one thing to skate and check out their conditioning and everything else, but you don't get a chance to experiment much with lineups and lines and combinations," Washington Capitals general manager George McPhee said. "That's the hardest thing for managers right now. A lot of unknowns ... but we're excited nonetheless to get going."
Tampa Bay Lightning general manager Steve Yzerman, who forged a Hall of Fame career over 22 seasons with the Detroit Red Wings, isn't concerned about getting adjusted to the new deal because the key issue of the salary cap isn't all that different.
"As things go along, every change you make, every rule you put in whether it's on ice or off ice, generally has unforeseen consequences that come up with it," said Yzerman, who retired one season after the 2004-05 lockout. "I don't see it being terribly difficult.
"Over the next year or two the market will readjust and that will sort itself out."
The agreement is for 10 years, but either side can opt out after eight. The previous deal was in effect for seven seasons.
"It's one that will stand the test of time with a system where all teams can be competitive and have a chance to make the playoffs and even win the Stanley Cup," Bettman said. "It guarantees that our attention from now on will stay where it belongs, on the ice."
After the players vote to ratify, clubs can then begin the process of winning back fans. Bettman declined to give specifics because he didn't want to be presumptuous that the union would give its approval.
"The National Hockey League has the responsibility to earn back your trust and support, whether you watch one game or every game," Bettman said. "That effort begins today. The players are ready to play their hearts out for you, the teams are preparing to welcome you back with open arms, the wait is just about over.
"Like all of you, we can't wait to drop the puck."
The NHL won't release the new schedule until the players ratify the deal. The regular season was supposed to begin Oct. 11, but the lockout wrecked those plans after it took effect Sept. 16.
The outdoor Winter Classic and the All-Star game won't be played this season.
Last season, the NHL generated $3.3 billion of revenue. The new deal will lower the players' percentage from 57 to 50.
Players will receive $300 million in transition payments over three years to account for existing contracts, pushing their revenue share over 50 percent at the start of the deal. They also gained a defined benefit pension plan for the first time.
The salary cap for this season will be $70.2 million before prorating to adjust for the shortened season, and the cap will drop to $64.3 million in 2013-14 — the same amount as 2011-12. There will be a salary floor of $44 million in those years.
Free agents will be limited to contracts of seven years (eight for those re-signed with their former club).
Salaries within a contract may not vary by more than 35 percent year to year, and the lowest year must be at least 50 percent of the highest year.
The minimum salary will remain at $525,000, and there were no changes to eligibility for free agency and salary arbitration.
The threshold for teams to release players in salary arbitration will increase from $1.75 million to $3 million.
Each team may use two buyouts to terminate contracts before the 2013-14 or 2014-15 seasons for two-thirds of the remaining guaranteed income. The buyout will be included in the players' revenue share but not the salary cap.
Revenue sharing will increase to $200 million annually and rise with revenue.
An industry growth fund of $60 million will be funded by the sides over three years and replenished as needed.
Issues such as whether NHL players will participate in the 2014 Olympics and realignment within the league will be addressed with the union down the line.
"Together our collective future is extremely bright," said Boston Bruins owner Jeremy Jacobs, who is also the chairman of the board of governors. "Our only interest now is to look ahead and focus on what this great game can provide to the best sports fans in the world.

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What Happened to the 2012 Tech Bubble That Never Was

Turns out Facebook's fizzled IPO was a pretty good microcosm for 2012 in startup land: it was all one big fizzle. The final numbers for last year in venture-capital IPOs and acquisitions are in, and while there was no dot-com-era type of explosion, the much hyped new tech bubble appears to have just... petered out. There remains hope, as always, for the unpredictable year ahead. Here are some key stats from the Thompson Reuters and National Venture Capital Association survey released Wednesday:
RELATED: Mark Zuckerberg Promises Not to Bail on Facebook for the Next Year
Venture-backed companies made less money for their investors than they did a year ago.
There is less investment money out there, overall, with investors doling out $6.9 billion last quarter, compared to $10.1 billion the year before and $8.4 billion a quarter before that — a trend that The Wall Street Journal noted back in September, which we speculated may have had something to do with Facebook's IPO fail.
Acquisitions of "venture-backed companies" were also down, totaling $3.52 billion last quarter down from $4.99 the year before, as were acquisitions in general, which totaled $21.5 billion, down 11 percent from $24.09 billion in 2011.
The number of companies that opted to IPO fell to eight from 11 the year before.
The most positive figure from the entire report is actually skewed: Those eight companies that did IPO companies raised more money on average, combing out with higher valuations — an average that is weighed down almost entirely by Facebook. But venture-backed companies did raise $21.5 billion (way up from $10.7 billion the year before), which was the strongest annual funding since 2000.
RELATED: Ah, This Is Where the Real Silicon Valley Hackers Are
These numbers match the trends we saw all year, with Facebook's initial stock drop scaring away investors from start-ups, venture capitalists having a hard time raising money for tech ventures, and companies like Kayak pushing off their IPOs as long as possible until market conditions suit edtheir needs. It's just a lot of hesitancy. Part of that might just be a Facebook effect, or maybe 2012 was the "peak of the hype cycle" as Scott Sandell, a venture capitalist at New Enterprise Associates, described the year to The Wall Street Journal's Pui Wing-Tam.
RELATED: Tech Bubble Cautionary Tales: When Equity Replaces Money
And a descent generally follows a peak, right? Still, Sandell doesn't see 2013 as a year of doom or gloom for Silicon Valley. Things are sunny! "The end isn't anywhere near," he said, pointing to bright spots in companies that sell technologies to businesses. Of course, those aren't the big tech 2.0 companies we hear about all the time, the ones that made up the much discussed and much more specific social media bubble. What will become of the Twitters and Tumblrs, the Pinterests and Paths and SnapChats and all the clones they've already spawned? The path is less clear than ever, but, hey, it's only the first week fo January. And it probably won't be as bad as this.

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Patent hints Apple may bring its own unique stylus to iOS devices

Many people had a good laugh when Samsung (005930) unveiled the Galaxy Note last year and made a big deal out of the device’s Palm Pilot-like stylus. But once the Galaxy Note became a hit, people stopped snickering and began to take the stylus seriously as an accessory once again. Apple (AAPL) is apparently considering hopping on the stylus bandwagon, as HotHardware reports that the company has filed a patent for a pen accessory it describes as an “active stylus” that “can either act as a drive electrode to create an electric field between the drive electrode and the sense lines of a mutual capacitive touch sensor panel, or as a sense electrode for sensing capacitively coupled signals from one or more stimulated drive rows and columns of the touch sensor panel or both.”
[More from BGR: ‘iPhone 5S’ to reportedly launch by June with multiple color options and two different display sizes]
Putting things into plain English, HotHardware says that this active stylus “would perform the same functions as a traditional stylus, it would just do a better job” by allowing for “more accurate input.”
[More from BGR: Nokia predicted to abandon mobile business, sell assets to Microsoft and Huawei in 2013]
Since Apple has willingly followed market trends over the past year by releasing a larger version of the iPhone and an 8-inch version of the iPad, it shouldn’t be too surprising that Apple is considering adding a stylus to its lineup of iOS products. That said, you probably shouldn’t expect Apple to release an “iNote” phablet anytime in the near future even if the company does release the next-generation iPhone in two different sizes.

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Quick fix for Boot Camp brings Windows 8 to new iMac computers

Early adopters of Apple’s (AAPL) new iMac computers who chose the 3TB Fusion Drive model have been unable to use Boot Camp Assistant. The program, which allows OS X users to install a Windows partition on their computers, is limited to drives of up to 2.2TB. Apple has hinted that the software may be updated in the future to support larger drives, however no set time frame has been given. Despite the set back, it has been discovered that it is still possible to create a working Boot Camp partition on new iMacs.
[More from BGR: ‘iPhone 5S’ to reportedly launch by June with multiple color options and two different display sizes]
TwoCanoes Software notes that, “since it is not possible to get around the 2.2 TB limitation with booting Windows, it is possible to organize the partitions so that Windows is the last of the first four partitons [sic] and is within the first 2.2 TBs of space on the drive. Since the Mac can see the remaining space above the 2.2 TB limit, this space can be used for addtional [sic] storage space for OS X.

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Is Iran's presence in Latin America a threat? The White House says yes.

When the United states government signed into law the Countering Iran in the Western Hemisphere Act, the US was quickly criticized for being stuck in the past.
The law was the White House’s most public strategy to date to counter Iran’s influence in the Americas, and gives the State Department 180 days to draw up a plan to “address Iran’s growing hostile presence and activity.” The US received prompt criticism from Iran who said the US “still lives in the cold war era and considers Latin America as its back yard.”
“It is an overt intervention in Latin America[n] affairs,” said Iran’s foreign ministry spokesman Ramin Mehmanparast, quoted in Al Jazeera.
Iran is increasingly isolated as it forges ahead with a nuclear program that has raised alarm across the globe. Iran says its nuclear development is for civilian purposes, like energy, while many international observers believe it is working toward creating a nuclear weapon. In the same time period, Iran’s growing influence in Latin America, especially within Venezuela, Bolivia, and Ecuador, has generated suspicion among those who worry that, at worst, Lebanon-based Hezbollah and supporters in Iran seek to attack the US from south of the American border. Many have called on the US to prioritize this new international threat.
Recommended: Think you know Latin America? Take our geography quiz.
But Gary Sick, an Iran expert at Columbia University in New York, does see some parallels with the 1950s, when many American politicians saw a “communist under every bed,” he says. “Now they see an Iranian under every bed.”
Mr. Sick says the signing of the act does not mean that the US has ramped up its view of Iran’s capabilities in Latin America, but that, as in the cold war, to vote “against security” is politically untenable.
“I don’t think the Obama administration is lying awake at night worrying if Iranians are going to attack from the south. But how can you possibly vote against increased alertness to our south?” Sick says.
The new law, which was passed by lawmakers in Washington late last year, calls upon the US to create a “comprehensive government-wide strategy to counter Iran's growing hostile presence and activity in the Western Hemisphere by working together with United States allies and partners in the region,” according to the bill.
In Latin America that includes a “multiagency action plan” which calls for the US and partners in the region to create “a counterterrorism and counter-radicalization plan to isolate Iran.” In Mexico and Canada, specifically, the US aims to tighten border control with its counterparts with an eye toward evading an Iranian security threat.
IRAN IN THE AMERICAS
Iran, under international sanctions for its nuclear program, has bolstered its relationship with leaders in Latin America in recent years. Iran has built 17 cultural centers in the region and increased its number of embassies from 6 in 2005 to 11 today. Perhaps most worrisome has been the blossoming friendship between Iran’s President Mahmoud Ahmadinejad and Venezuelan President Hugo Chávez. President Chávez has led a regional group of anti-American leaders who have also developed stronger ties with Iran.
Many view those relations as a diplomatic effort to gain friends at a time when Iran needs legitimacy. They say that anything more sinister is unrealistic, since Iran has neither the military might nor GDP to pose a substantial threat to the US.
Most of Iran's promises in Latin America in fact have been just that – promises. From factories to infrastructure deals, they have not amounted to more than paper pledges.
But Washington has expressed caution. When news emerged in October 2011 that two agents tied to Iran allegedly attempted to hire a Mexican drug trafficker to assassinate the Saudi ambassador to the US, Secretary of State Hillary Clinton told the Associated Press that the plot "creates a potential for international reaction that will further isolate Iran, that will raise questions about what they're up to, not only in the United States and Mexico.”
THE SAME PAGE
Stephen Johnson, director of the Americas Program at the Center for Strategic and International Studies in Washington, says the new act is a response to legitimate concerns. “As the act is really a call to formally study the issue and develop a plan to deal with any threats, it responds to a history of heightened activity in the hemisphere on the part of Iran since the mid-1990s,” Mr. Johnson says. “The legislation has been in the works for a year and comes at a time of heightened concern over Iran’s nuclear program.”
The act is an effort to put the region on the same page in viewing Iran as a potential threat, says Daniel Brumberg, an Iran specialist at the United States Institute of Peace, though he considers it symbolic since the US already has plenty “on the books to deal with this challenge,” Mr. Brumberg says. Still, “this represents, from what I can see, the first effort to encourage a more public or articulated strategy vis-a-vis Iran … and South America.”
Brumberg says the US risks backlash from leaders such as Chávez, who will “invoke the law as another example of the US trying to dictate the diplomacy of the region.” But Brumberg says, the US views this kind of reaction as a small price to pay.
But, says Sick, the year 2013 looks very different than the 1950s and 1960s. “If Chávez survives, then he might indeed use it as ammunition against ‘the big boy to the north.’ But my guess is that [Latin America] will see [the new law] as a pretty minor thing too,” he says. “I don’t think it will cause much of a ripple.

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