Saturday, November 19, 2011

Democrats Want the Super Committee to Fail But Will Backfire

Democrats refused to work with the GOP and left the table. The super-committee is doomed, and will fail to agree on a $1.2 trillion reduction in the nation's deficit. Democrats are purposely wanting an automatic reduction to the defense budget and blame the GOP for automatic cuts to Medicare. However, the Democrats plan may backfire. There is a huge backlash on the Democrat party for the past couple years. In 2012, the American people will have another chance to vote out the Democrats in Washington.

(Guardian) Economists are warning of dire consequences if US politicians fail to make progress this weekend in tense talks aimed at reducing America's massive deficit ahead of a Wednesday deadline.

The bi-partisan congressional super-committee is charged with drawing up plans for a $1.2tn reduction in the nation's deficit by the middle of next week. Failure to do so will trigger an automatic "sequester" that will make cuts of that size to defence and social welfare programmes starting in 2013. But the two sides seem far from finding a solution after clashing over tax revenues.

While Wednesday is the official deadline for the supercommittee to report back, it has until Monday to tell the Congressional Budget Office about the impact any plan they send to Congress will have on the budget.

Failure to reach an agreement on what is essentially a small reduction on the deficit – just 0.7% of gross domestic product in 2013 – could trigger another rating's agency downgrade, warned economists including Paul Ashworth, chief North American economist at Capital Economics.

Morgan Stanley analyst Christine Tan predicted earlier this month that there was now a one-in-three possibility of another downgrade.

"If the supercommittee fails to reach a $1.2tn deficit reduction deal, if such a deal relies more upon accounting changes than real deficit reduction, or if congressional action lessens the impact of the $1.2tn automatic trigger, we believe this could potentially provide S&P with a pretext to downgrade the US further from AA+ to AA," wrote Tan in a note to investors.