Whoâ??s afraid of the big, bad cliff?

WASHINGTON — The economic threat that's kept many Americans on edge for months is nearing reality — unless the White House and Republicans cut a budget deal by New Year's Day.

Huge tax increases. Deep cuts in domestic and defense programs. The likelihood of sinking stock prices, reduced consumer spending and corporate layoffs. The risk of a recession within months.

Still, the start of 2013 might turn out to be far less bleak than feared. For one thing, the two sides may strike a short-term agreement before New Year's that postpones spending cuts until spring. President Barack Obama and members of Congress return to Washington today.

Even if New Year's passed with no deal, businesses and consumers would not likely panic as long as some agreement seemed imminent. The $671 billion in tax increases and spending cuts could be retroactively repealed.

And the impact of the tax increases would be felt only gradually.

The simple conclusion that going off the cliff necessarily means a recession next year is wrong, says Lewis Alexander, an economist at Nomura Securities. It will ultimately depend on how long the policies are in place.