As the U.S. government propels itself toward a year-end “fiscal cliff,” the drumbeat warning of dire consequences is getting louder – in some cases maybe a little too loud.

Most economists agree the U.S. economy will almost certainly fall back into recession unless Congress makes changes to a package of automated tax increases and spending cuts agreed to last summer to break a deadlock over raising the debt ceiling.

The latest warning comes from the National Association of Manufacturers, which released a report Friday analyzing the economic impact of the looming package of higher taxes and sharp spending cuts.

“Even if the administration and Congress resolve the uncertainty before the end of the year, economic growth already has sustained significant damage,” the report concluded.

That view is supported by the latest numbers from the government on third-quarter gross domestic product, which showed weak spending and investment by companies unsure about the long-term impact of budget policy on their businesses.

U.S. gross domestic product expanded at a 2 percent annual rate in the three months ending in September, the Commerce Department said, accelerating from the second quarter's 1.3 percent pace. Though the improvement was welcome news, economists say growth of less than about 2.5 percent is too slow to make much headway in lowering the unemployment rate, currently at 7.8 percent.

The NAM analysis estimates that business leaders’ uncertainties about the fiscal cliff have cut GDP this year by 0.6 percent, or less than two-tenths percent per quarter, consistent with estimates from other private economists.

But the report, which features a foreboding cover-page image of dark clouds streaked with lightning bolts, goes further than most forecasters in laying out a worst-case scenario.

“The U.S. economy is bracing to take an immediate $500 billion hit on Jan. 1, 2013,” the report warns. “The ‘double whammy’ of across-the-board cuts in spending and federal tax increases will be large and sudden."

The fallout, the report warns, will create “dramatic” job losses of 6 million over two years,  dampen GDP by 12.8 percent through 2015 (or about 4 percent a year), send the jobless rate to 11 percent and cut personal disposable income by almost 10 percent by 2015.

Though plausible, the scenario assumes that the next Congress and president sit idly as the economy plunges into a deep recession. Despite the deep political dysfunction that created the fiscal cliff in the first place, few private economists or political analysts expect no action whatsoever on the budget impasse for the next three years.

While continued uncertainty is certainly likely – and will hold back growth – the process of defusing the fiscal cliff time bomb is fairly easy to do once Congress agrees to do it.  At any point before Dec. 31, Congress can repeal the or delay the so-called "sequestration" as negotiations continue on a new budget plan.

And while sequestration calls for 10 percent cuts in spending for the current fiscal year (which ends Sept. 30) it doesn’t mandate immediate cuts in spending on Jan. 1, 2013. Government departments and agencies have until the end of the fiscal year to hit the 10 percent spending reduction target. Some may delay implementing cuts in hopes of a deal later in the year.

The same holds for tax increases, which would rise by about a total of about $400 billion, spread out over the remainder of the fiscal year. The economic hit would be gradual -- about $10 billion a week, or 2.6 percent of GDP -- and continue only as long as the budget impasse remains unresolved.

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Gerald Herbert / AP

Gas prices are displayed at a gas station and mini-mart in the Mid City section of New Orleans. Pump prices have fallen quickly in the past several days, giving Mitt Romney one less thing to slam President Barack Obama with in the run-up to the election.

In a week that saw President Barack Obama poll dead-even with Republican rival Mitt Romney in the race for the White House, it may have been some relief to Democrats that gas prices have shed 17 cents in the last 12 days.

While that could help boost the president's chances for another four-year term (or at least not hurt them), the drop in prices has more to do with luck than with White House energy policy.

After refinery bottlenecks sent prices surging ahead of a seasonal switch from summer to winter gasoline blends, those kinks have been cleared and gasoline has begun flowing smoothly again.

The global oil markets, meanwhile, are awash in oil thanks to a global economic slowdown that has cut into demand. And while tighter sanctions on Iran have crimped that country’s oil exports, any shortfall has been more than made up by rising U.S. production set in motion by forces in place before Obama took office.

For all the spirited debate about the success or failure of the White House's energy policies, presidents have little control over the market forces that drive gas prices higher or lower.

“(Obama) gets blamed for high gasoline high prices -- which he has nothing to do with -- and he takes credit for higher production -- which he has nothing to do with,” said John Kingston, director of news at Platt’s. “So maybe it all sort of balances out.”

The timing of the pump price plunge comes as the candidates continue to pound each other over energy policy. After surging to more than $4 a gallon in many parts of the country, the national average price of a gallon of regular has fallen by 13 cents to $3.58 in the past week, according to Energy Department data.

The sharp slide is expected continue, according to AAA, pulling average pump prices down to between $3.40 and $3.50 by Election Day and $3.25 to $3.40 by Thanksgiving.

The prospect for that continued decline rests, in part, on continued stability in the price of crude oil, which has remained remarkably steady despite ongoing tensions with Iran over its nuclear program.

As the U.S. and its allies have tightened the noose on Tehran this year, the loss of oil revenues has plunged the Iranian economy into chaos. Crude oil sales generate about half of Iranian government revenues. Oil and oil products make up nearly 80 percent of its total exports, according to U.S. estimates. Oil analysts calculate that the sanctions have blocked sales of roughly 1 million barrels a day, or about a quarter of Iran’s production capacity.

The lost oil income has lopped roughly a third off the value of the Iranian currency, the rial, relative to the dollar, sparking a round of painful inflation for Iranian consumers and putting added pressure on the Iranian regime to end its nuclear weapons development program.

Iranian: Our money is becoming more worthless every day

On Tuesday, Iran said it would halt oil exports altogether if Western sanctions tighten any further.

"We have prepared a plan to run the country without any oil revenues," Iranian oil minister Rostam Qasemi told reporters in Dubai. "If you continue to add to the sanctions we (will) cut our oil exports to the world. ... We are hopeful that this doesn't happen, because citizens will suffer. We don't want to see European and U.S. citizens suffer."

Until recently, the threat of a full cutoff of Iranian oil production would have been enough to send crude prices soaring. But with global demand slowing because of sluggish economies, the oil markets have remained surprisingly stable.

That could change if Iran ups the ante and moves to restrict oil shipments from other oil producers in the region. One long-standing worry in the oil markets is the potential crimp in supplies from military action in the Strait of Hormuz, the global pinch point bordering Iran through which roughly 20 percent of the world’s oil flows every day.

An Iranian blockade remains a constant threat to global oil supplies. Last month, more than 30 nations, led by the U.S. Navy, conducted naval exercises that included efforts to thwart a simulated mining of critical shipping lanes.

The results were not reassuring, according to a report by PBS Newshour.

Of the 29 simulated mines that were dropped in the water, “I don’t think a great many were found,” retired Navy Capt. Robert O’Donnell, a former mine warfare director for his service, told the NewsHour. “It was probably around half or less.”

U.S. oil refiners are getting an even bigger break on crude prices. That's thanks to a steady rise in North American production captive to a pipeline system that was designed and built before recent production surges in Canada and revived U.S. oilfields. Much of the credit goes to advances in technology that have had little to do with U.S. energy policy. But the gains have been both unexpected and dramatic.

Since 2009, shortly after Obama took office, U.S. oil output has risen by roughly 1.6 million barrels per day, ending a more than tw-decade decline in production. The glut of oil has depressed domestic prices compared to the global benchmark, providing U.S. refiners with a discount of about $20 a barrel below the global price of about $110. That lower U.S. price will continue to help keep U.S. pump prices in check.

The domestic oil boom has also helped cut unemployment in energy-producing states, adding roughly 1.7 million new jobs this year, according to IHS Global Insight’s energy research group. That number could rise to almost 3 million by 2020, the firm said in a study released Tuesday. 

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A strange thing happened just outside the Republican convention: A civil conversation about the economy broke out.

Media doyenne Arianna Huffington, whose Huffington Post website is closely aligned with progressive causes, hosted a panel discussion alongside the convention in Tampa, Fla., with a distinctly nonpartisan tone around the theme of how to solve the job crisis.

Despite the nearby convention, the event, hosted by the Huffington Post, NBC News and Microsoft, took a mostly neutral tone, focusing on solutions and successes rather than stoking party flames. A similar event will be held in conjunction with next week's Democratic convention in Charlotte, N.C.

"Having a job is not just about economic security, it’s about emotional security and cultural security for the country," said moderator Tom Brokaw, an NBC News special correspondent.

Huffington said the purpose of the event was to tell people that they “can no longer be bystanders” in finding ways to end the jobs crisis.

The stubbornly high unemployment rate, currently 8.3 percent, has provided Republican challenger Mitt Romney with one of his most potent weapons in his race to unseat Democratic President Barack Obama.

Panelists returned often to the theme of education and its role in driving the economy.

Ohio Gov. John Kasich, a Republican, suggested that if his state could get private businesses to divulge more of their plans, he could push schools to match their needs.

"If you can forecast and move academics to be consistent with training people (in) what they are born to do … it will be a tremendous benefit to our state," he said.

Kasich also pointed to predominantly African-American urban centers as an overlooked area of growth, and said entertainer Jay-Z's involvement with the Brooklyn Nets could serve as an inspiration.

Kasich provided the lone exception to the generally nonpartisan tenor of the discussion when he took a brief swipe at business regulations that drew an applause from the crowd.

Scott Case, founder of an advocacy group called Startup America, pointed to the value of entrepreneurs.

“If you look at the last 30 years, all the net new jobs were created by companies that were less than five years old," he said, arguing that such commercial successes should be celebrated more widely, not just in Silicon Valley and New York.

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Brian Snyder / Reuters

Republican vice-presidential candidate, Representative Paul Ryan, R-Wis., speaks during a town hall meeting campaign stop with Republican presidential candidate Mitt Romney in Manchester, N.H., this week.

OXFORD, Ohio - When Cesar Conda was a Republican staff director on the Senate's Small Business Committee in 1991, he often was badgered with questions on economic theory by Paul Ryan, then a 21-year-old intern.

Ryan, now the Republican candidate for vice president, "worked in the mail room and would constantly pop his head into my office to ask questions about supply-side economics," Conda said. "I had a lot of work to do, so I gave him a couple of books to keep him busy."

Conda, now chief of staff for conservative Florida Sen. Marco Rubio, lent Ryan Jude Wanniski's "The Way the World Works" (1978), which Conda called "the Bible" for the 1981 Kemp-Roth tax cut that lowered the top U.S. income tax rate to 50 percent from 70 percent. Conda also lent Ryan George Gilder's "Wealth and Poverty" (1981), which Conda says was a guide for President Ronald Reagan's supply-side economic policies of lowering taxes, slowing government growth and reducing regulation.

Ryan soon returned the Wanniski book, but Conda did not retrieve "Wealth and Poverty" until 2008, when he saw it in Ryan's Capitol Hill office. By then, Ryan was a five-term congressman from Wisconsin and the top Republican on the House Budget Committee.

"The margins were full of notes," added Conda, an economic adviser to the 2008 presidential campaign of Republican Mitt Romney, whom Conda introduced to Ryan in 2007.

Those who have known Ryan since the early 1990s describe a young man with a clear idea of his own political and economic philosophy. Ryan spent his formative years strengthening his grasp of supply-side economic theory.

Democratic opponents say that Ryan's austere budget plan -- which would carve into social programs that protect the poor such as food stamps and Medicaid health insurance -- is uncompromisingly cruel and based on an ideology of tax cuts and reduced regulation that, under former President George W. Bush, caused America's current economic woes.

Ryan and other Republicans reject that portrayal of the budget and its author.

Those in what Kansas Gov. Sam Brownback calls Ryan's "band of brothers" -- like-minded Republican politicians and strategists from Reagan's tenure in the 1980s and Ryan's formative years in Washington in the 1990s -- say that while Ryan is committed to supply-side economics, he is capable of compromise on economic issues.

That would make Ryan more like Reagan than today's Republican hard-liners, who view Reagan as a conservative icon but typically reject the former president's penchant for compromising with Democrats.

Some recall conversations with Ryan in 2008 before Congress' votes to create the Troubled Asset Relief Program, the controversial bank bailout that cost taxpayers more than $400 billion. Ryan looked beyond his opposition to TARP because he realized the alternative was to subject America to an economic depression, these Ryan fans and supply-siders said.

"Paul is an eager, happy warrior on the battlefield of ideas," said Vin Weber, a former Minnesota congressman who was a co-director of the now-defunct conservative think tank Empower America, where Ryan worked in the 1990s. "He has strong beliefs, but he's driven by data. Paul knew without TARP in 2008 we would descend into another Great Depression, and I still think he did the right thing by voting for it."

'Vision quest'
During a 2009 commencement speech he gave at Miami University in Oxford, Ohio, where he graduated in 1992, Ryan referred to having had a "difficult" time in high school after his father's death.

He also mentioned an economics professor, Rich Hart.

"He provided me with much more than just an education in economics," Ryan said. "He provided a vision quest in my mind to improve the economy of our nation."

Hart, whose "intellectual hero" is economist Milton Friedman, had long conversations with Ryan and gave him a copy of Friedman's "Capitalism and Freedom."

Hart said he often has given students Ayn Rand's "Atlas Shrugged," a novel about a rebellion by citizens against high taxes and government regulation that Ryan has said had a great influence on him. Hart said Ryan already had read the book by the time Hart taught him.

"When Paul Ryan arrived at Miami he already had an economic and political philosophy," Hart said. "He spent his time here refining and strengthening it."

When Ryan went to Oxford in 2009, Hart says he tried to persuade his former student to run for president. He recalls Ryan saying no, that he did not want to leave his three young children to campaign for two years.

While at Miami, Ryan interned for Republican Sen. Bob Kasten of Wisconsin and for the Senate Small Business Committee. Kasten said he offered Ryan a job after he graduated in 1992 and that Ryan "was always mature beyond his years."

But Kasten recalled a moment of youthful longing by Ryan. When Ryan got the job offer, he said he wanted to take a year off to be a ski instructor in Colorado. Ryan's mother, Elizabeth, insisted he seize the chance to work in Washington.

After Kasten lost to Democrat Russ Feingold in the 1992 election, Ryan joined Empower America, where he helped former congressman Jack Kemp, the co-author of the 1981 tax cut and Empower America's co-director for economic policy.

Founded after Democrat Bill Clinton won the 1992 presidential election, Empower America was intended to compete with Democrats "on the battlefield of ideas," Weber said. The think tank featured economists such as Arthur Laffer, one of Reagan's economic advisers.

Empower America later merged with Citizens for a Sound Economy, which later split into FreedomWorks and Americans for Prosperity, the latter of which has backing from oil and gas billionaire brothers Charles and David Koch.

Ryan was very close to Kemp, who briefly sought the 1988 Republican presidential nomination and was Bob Dole's vice presidential running mate in 1996.

Weber said that Kemp, who died in 2009, "was the great hope for many of us after Reagan because for conservatives of my ilk he best embodied Reagan's policies.

"After Kemp, Paul Ryan emerged as our next great hope," he added.

Some have portrayed Kemp as a second father to Ryan, but Kasten says that is not quite accurate.

Kasten said Ryan has had several brother-type relationships with like-minded conservatives such as Kasten, "based on mutual respect and love."

Very sharp
Conda introduced Ryan to Romney in Ryan's office January 2007. What was supposed to be a courtesy meeting quickly became something more.

"Before long they were talking about entitlement reform and marginal income taxes," he said. "Afterwards, Romney said to me, 'I like him; he's very sharp.' "

Apart from sharing an apparent affinity for tax and economic theory, some who know Ryan say he and Romney are both compromisers.

"There are some people who can be a committed conservative and agree with all the ideas, but still be an individual," said Linda Killian, a journalist who chatted with Ryan several times in the mid-1990s for her book "The Freshmen: What Happened to the Republican Revolution?" -- an account of the two years after Republicans took control of Congress for the first time in four decades in 1994.

Ryan is "certainly no partisan robot," Killian said.

But Congressman Chris Van Hollen, the top Democrat on the House Budget Committee, said that although Ryan is personable, "you should not confuse congeniality with an ability to compromise."

"Paul Ryan is a passionate advocate of trickle-down economics that have failed the test of reality," Van Hollen said. "There is no compromise in his budget plan. It's a take-it-or-leave-it proposition with a totally lopsided approach to the budget and the economy."

Conservatives who know Ryan well point to his vote for TARP as an example of his ability to compromise on economic issues.

The bank bailout is anathema to Tea Party activists, who have targeted those who supported it such as Indiana Senator Dick Lugar, who lost a primary election in May.

In 2008 Ryan said in the U.S. House that although TARP was against his principles he would support it "to save" the free-market system.

"Paul Ryan is not a dogmatic, blind conservative," Kasten said. "He's made a number of compromises and will continue to do so."

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