President Obama was in Australia this week where he criticized European leaders for their "lack of will." The phrase seems an odd rock for the leader of a country living in its own large glass house. The Super Committee, or "Joint Select Committee on Deficit Reduction" as it is officially known, is running out of time. Whatever recommendations and agreements it manages to discern still have to be tested by the Congressional Budget Office (CBO) before they become final. But they'll probably get it done. Delay is de rigueur in Washington. All of those all-night, last-minute crammers must have gone into politics.
There's really no excuse for them not to have a deal. There are a lot of accounting gimmicks available to the committee that should allow them to hit their $1.2 trillion number according to Isaac Boltansky, Policy Analyst at Compass Point Financial. "For example, they get to choose the baseline against which to measure their cuts. If they choose the CBO assumption that all of the Bush tax cuts expire and the Medicare adjustments do not occur, then they begin with a $3.5 trillion deficit over 10 years. If they use an alternate fiscal scenario where they merely extrapolate current tax rates and expenses, the base would be an $8.5 trillion deficit over the next 10 years."
Will they achieve meaningful, substantive cuts? We don't think so. They certainly won't address significant entitlement reform of any kind. Those "touchy" issues will be sent back to the Congressional Committees that have responsibility for them. So while we believe we will likely see an agreement and debt reduction package from the Super Committee, we doubt it will hold up to much scrutiny and expect we will be doing this all again next year, albeit after a presidential election.
The fallout from this "all hat and no cattle" decision will be significant. As the reforms prove largely toothless upon serious study, we expect U.S. debt to be downgraded again in January 2012.
Market reaction is always difficult to predict, and the rolling plethora of world events has blinded even the most astute prophets. Our guess is that markets will be encouraged by a deal that will avoid the mandatory cuts but will wane as both Congressional ratification by December 23rd and meaningful content prove elusive.
We were wrong in July when we suggested yields would increase should US debt be downgraded. Though it would be reasonable to suggest that yields would rise in January if met with another downgrade, we will remain mute on the subject based on recent experience.
Should the S&P 500 produce single digit earnings growth of 5% or 6% in 2012, stocks with an average 2% dividend appear compelling. The emotional saga that is becoming epic will probably define the investing climate for at least the next year or two. The fragile recovery and bottoming process are underway but most likely will continue for a good while.
Sen. Bernie Sanders: Democrats, Stop Caving In
That will bring in an extra 4 Trillion dollars over 10 years.
More than enough to sustain medicare and create millions of jobs
Grover Norquist said not extending the Bush cuts, would not break his pledge.
Patriotic Millionaires say end the Bush tax cuts.
Senator McConnell said "And of course the economy, some would argue, is even worse now than it was when the president signed the extension of the current tax rates back in December.”
With an extra 4 Trillion dollars you can do some big things.
Give everyone a 1,000 tax rebate.
Reinstate the consumer loan interest tax deduction.
Hire 4 million Americans at an average 25,000 each. FDR created 4 million jobs in one month.
The increased consumer demand will generate more hiring, more revenue. More people working means decreased social cost associated, with unemployment crime, and foreclosures.
Despite dire predictions the result of the Clinton era tax rates were 23 million new 4% unemployment and a budget surplus. The budget surplus turned into a budget deficit just 2 months after the Bush tax cuts went into effect and grew to over a Trillion dollars. Unemployment doubled, End the Bush tax cuts and end economic anorexia.