A dangerous stalemate for the US economy

The failure of the comically mis-named "super-committee" of Congress to come up with even the modest debt reduction package required of it has been a racing certainty for weeks in Washington. Nonetheless, Monday evening's admission of that failure – the latest proof of the dysfunctionality of America's political system – is not only shameful. It is also dangerous.

The 12-person committee, split equally between Republicans and Democrats, was not being asked to remake the universe. Its task was to find $1.2 trillion of savings over 10 years, or barely 0.5 per cent of total GDP for that period, just a fraction of the $4trn worth of deficit reduction that most economists deem necessary for the nation's finances to be put in order.

The group was, moreover, given exceptional powers, including fast-track voting, decisions taken by a simple majority and no filibusters. Even so, it could not get the job done. The stumbling blocks were the usual ideological ones: the Democrats' reluctance to make meaningful cuts in public health and pensions programs, the Republicans' refusal to countenance any tax increases, even for the very rich. What happens now? The short answer, almost certainly, is nothing, at least until the 2012 presidential elections are out of the way. Theoretically, mandatory cuts, affecting even the normally sacrosanct Pentagon budget, will kick in automatically – but not until January 2013.

In political terms, the most obvious "winner" from the debacle is Mr Obama himself. Wisely, he declined to get involved in a doomed venture. Instead, he has to all intents and purposes launched his re-election campaign, portraying Republicans as the heartless party of "fat-cat" America and weighing into a "do-nothing" Congress.

For more: Leading article: A dangerous stalemate for the US economy - Leading Articles - Opinion - The Independent

USA: Super committee squandered a rare opportunity to take major action against the United States' fiscal problems

One thing is that is absolutely certain is that Democrats and Republicans will use the super committee's dead end for political gain. Democrats are saying the outcome is further evidence Republicans just want to protect the rich from sharing the burden of deficit reduction. Republicans will argue that, once again, Democrats fail to grasp the gravity of escalating costs of healthcare benefits.

The White House has been bracing for days for the committee's failure and believes President Barack Obama can weather it without major political fallout and that he may even be able to score points against Republicans as he seeks re-election. Aides believe Obama will be able to seize the chance to further paint Republicans as obstructionist, a strategy they hope will be more potent because of polls showing most voters back his proposal to increase taxes on wealthier Americans.

The committee's failure could trigger another downgrade of the U.S. credit rating. Rating agencies, however, have said they will look at a range of factors in making any decision but that the committee's washout will not be decisive.

One thing is certain: The super committee disbanding without having agreed on one penny of deficit-reduction. Instead, it will have actually contributed to the government's $1 trillion-a-year budget deficits, having spent government funds paying for staff and other expenses.

Note EU-Digest: Watching CNBC Squawk Box this morning in trying to get some more insight as to the Super Committee's collapse it was surprising to see how little discussion there was about what, without doubt, is a major setback for the US economy. Instead the Squawk Box TV commentators seemed more interested to talk and joke in detail about the quality of their $70.00 hair cuts. Maybe it shows how irrelevant the political establishment has become in comparison to the the financial community ?

EU-Digest

US Economic and Political Crises: Super Committee announces it failed to compromise on deficit

The bipartisan leadership of a special congressional committee — assigned the task of slashing more than $1 trillion dollars from the U.S. deficit — announced Monday that the panel failed, unable to bridge bitter ideological differences separating Republicans and Democrats in the run-up to presidential and legislative elections next year.

Republicans refused to cross their ideological line against increasing taxes. Democrats refused to allow cuts in popular programs that serve the elderly and poor without a compensating growth of government income, especially from the wealthiest Americans.

Picture insert: Jeb Hensarling Republican Vice co-chair Super Committee

Note EU-Digest : In response to the Super Committee’s failure, Sen. Bernie Sanders put out a statement blasting the GOP for refusing to do what Americans really want, raise taxes on the wealthy.

For more: Supercommittee fails to compromise on deficit – USATODAY.com

USA - Super Committee turns into Super Disaster: World markets turn attention from Europe to US, where talks to reduce deficit near collapse - by Carlo Piovano

Fears that talks to reduce the U.S. deficit will collapse added to existing worries about European debt to push global markets lower on Monday.

A special deficit-reduction supercommittee in Washington was expected to admit failure in its quest to agree on how to improve government finances by $1.2 trillion over the coming decade. The main hurdle in the bipartisan panel's negotiations was how much to raise in new taxes.

The panel's failure would trigger about $1 trillion over nine years in automatic across-the-board spending cuts that some investors fear might not be tuned well enough to sustain growth and create jobs.

For more:"World markets turn attention from Europe to US, where talks to reduce deficit near collapse | CanadianBusiness.com

U.S. ‘super committee’ on deficit inches closer to abject failure

A high-profile effort to trim stubborn U.S. budget deficits appeared near collapse on Friday as Democrats and Republicans were unable to agree on tax increases and benefit cuts.

A 12-member “super committee” in Congress has until midnight on Wednesday to strike a deal that would save at least $1.2 trillion over 10 years. Members say they think a deal is still possible, but aides privately are more pessimistic. Friday is shaping up to be a make-or-break day, one super committee member said.

“We should know by end of today, and I’ll give myself until 11:59 p.m., as to whether or not there will be a deal,” Democratic U.S. Representative Xavier Becerra said at a renewable-energy conference.
Congress is already facing rock-bottom approval ratings after a year of down-to-the-wire budget battles, and failure to reach a deal would likely incite further disgust among voters as the 2012 election season heats up.

For more: U.S. ‘super committee’ on deficit inches closer to abject failure | News | National Post

US Economy in the spotlight: After Europe Change, Time for Market to Focus on US Economy

Political change in Italy and Greece may help soothe markets and allow investors to assess whether the coming week's economic data signals better U.S. growth.

Analysts say a risk for markets in the next two weeks will be the Congressional "super committee," tasked with finding a minimum of $1.2 trillion in deficit reductions over 10 years. While analysts think there's a good chance the bi-partisan committee will identify the cuts by its Nov. 23 deadline, there is also concern in the markets that it will not come to an agreement. But J.P. Morgan economist Michael Feroli, in a note, sees odds of the committee finding the full amount of cuts at just 30 percent, and a more likely scenario is that it only finds some reductions by Nov. 23. That would trigger a portion of the automatic cuts if it does not find the balance of the $1.2 trillion reductions by Jan. 15.

If the committee fails to find the full $1.2 trillion, analysts say the markets will not take it well. "I think there would be another shock, or after shock, but I think it would not be as bad as the summer," said Thayer.

Another risk analysts fear is the potential for another cut to the U.S. credit rating, if the committee fails. S&P cut the U.S. triple-A rating by one notch during the summer.

For more: After Europe Change, Time for Market to Focus on US Economy - Europe Business - CNBC