Portions of the supercommittee statement of failure …
"After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline."
"Despite our inability to bridge the committee's significant differences, we end this process united in our belief that the nation's fiscal crisis must be addressed and that we cannot leave it for the next generation to solve."
"We remain hopeful that Congress can build on this committee's work and can find a way to tackle this issue in a way that works for the American people and our economy."
Oh brother …
Note: While the Committee's deadline is Wednesday, November 23 at midnight, the details needed to be submitted by Monday, November 21 in order to have it "scored" by the Congressional Budget Office and to provide 48 hours for public discussion.
Note Two: I suggested in the two prior Tea Leaf issues that such a failure by the supercommittee could cost the Dow Jones Industrial Average (DJIA) 300-500 points. As of 3:00PM Eastern on Tuesday, the Dow was down 300 points from Friday's close.
… The Joint Select Committee on Deficit Reduction … more affectionately known as the Congressional "supercommittee" … flat out and miserably failed in its task to reduce horrendous budget deficits over the next 10 years by a combined $1.2 trillion. While such an amount seems massive, it represents less than three percent of projected government spending over the 10-year time horizon.
As also noted in last week's issue of the Tea Leaf—given the enormous financial pain and dislocation resulting from the Great Recession which ran from December 2007 to June 2009 — anyone you know who might have been required to reduce their annual spending by a whopping three percent?
If there is a greater single example of Congressional ineptitude of recent years, I am hard pressed to find it. This is just one more reason that Gallup poll surveys of Congressional performance this year will likely be the lowest on record.
An anemic (and record low) 13% of survey participants of the past four months approve of the job Congress is doing, while 82% disapprove. A recent CBS News/The New York Times poll had Congressional approval at a steamy nine percent.
Democrats and Republicans, as usual, whined about how hard the other side was to work with … how simply unreasonable they were. The Democrats wanted large tax increases … especially on the wealthy … with a very limited slowing in the growth rate of government spending, especially in the entitlement area. The Republicans were willing to consider modest moves to enhance revenue (none dare call it a tax increase), with expectations of more substantial slowing in future government spending.
As noted many times, we are not talking about "spending cuts." We are talking about slowing the future growth rate of government spending. Again, only in Washington DC can you spend more money every year on a program … and call it a spending cut!
Under current legislation, $1.2 trillion in reductions to future spending growth will automatically kick in during the nine years beginning in January 2013 … conveniently after the November 2012 elections. Half of this "spending restraint" is targeted at the defense sector.
That "Sequestration" Thing
Numerous members of Congress are already suggesting that any modification to future defense spending must be avoided, or that the entire "sequestration" framework should be overturned. Various Congressional members have suggested that other non-defense sectors could see spending restraint instead. The President noted that he would veto any legislation that avoided the sequestration requirement.
As one might expect, the three major ratings agencies were less than impressed with the committee's failure. Downgrades of U.S. debt could emerge at any time from Moody's and Fitch, while Standard & Poor's could consider a second downgrade. This would be especially true if the sequestration requirement is overturned.
Various politicians and media-types saw the failure of the supercommittee as a positive development, noting that the full Congress has the ability … and the responsibility … to get a handle on government. Newt Gingrich … he of rising relevance in the Republican Presidential race … was one such politician.
If we learned anything in recent days it is that the November 2012 elections, now less than a year away, will be primarily focused on 1 (the size and growth pace of the federal government, and 2) who pays for it. Every major election cycle is adorned with the "most critical ever" label. This time it is as true as ever before.