There may be no news more shocking than the recent revelation that the 12 members of the debt supercommittee have failed to reach a compromise on the national debt and the ways to reduce it. Such an unprecedented announcement is probably right next to the news that the sun rises in the east, or the fact that the world is not flat.
Honestly, all sarcasm aside, is there anyone that is surprised by this news. We stated on July 31st
“At this point, this is more akin to the Kobiashi manuever, a no-win scenario that unlike in science fiction cannot be rewritten or reprogrammed. All of this, to gain temporary political advantage.”
We went on to say on Aug 1st
“So in the best case scenario, we will spend only slightly less money each year going forward than we had predicited previously, and by Jan 2013 we may add to the amount of extra money we will not spend – likely not to exceed an additional $150 billion per year.
Therefore, putting it together, we will spend more money next year than this year, but $250 billion less than we had planned for. The interest on the national deficit will still grow at around $110 billion a month – instead of $120 billion, and we will remain deep in debt. That’s the plan.”
But that was our fanciful imagination. The reality of the failure of Congress (which means BOTH political parties) means that:
- $216 billion will be reduced from the national debt interest rate due to lower debt levels. Assuming interest rates do not move up for 10 years, and that spending levels do not increase – which they will as another debt ceiling increase is planned for the far off date of 2013.
- $492 billion in cuts must come from Defense and Domestic spending –
- That’s about $50 billion a year from the defense budget, placing it at about 2007 levels. It will then INCREASE every year for a decade at the rate of inflation – minimally.
- $50 billion a year (roughly) will come from the combined reductions in the Environmental Protection Agency, the National Institutes of Health, NASA, the National Parks, low-income housing vouchers, Head Start, and other programs. Each of them would see about a 9.3% reduction in funding. That’s for 2013, and like Defense it will then INCREASE as well.
Therefore, this SLOWDOWN in deficit spending, will have a limited effect. In general, anything that it does change will not be seen until AFTER the 2012 election, so as to not interfere with either political party’s candidate and campaign.
But here is the best part. These automatic and absolute cuts in spending, placed there by law, are already being planned to be rejected. The Washington Post, Fox News, Business Week, USA Today, and numerous other news organizations report discussions in Congress to block or circumvent the laws put in place by this same Congress just months ago.
Fiscal discipline is anything but what Congress is good at doing – no matter which political party is in charge. For decades they have increased the national debt, and passed the problem onto the next Congress to deal with. In the face of a downgrade of the national credit rating, they still failed to act in a manner with any real substance. The failure of the supercommittee is just Congress being consistent and reliable on the one thing that is a constant.
Will the failure of the supercommittee to put in place real deficit reductions produce yet another downgrade of the nations creditworthiness? It should, and likely will lead to that. Any actions to circumvent the mandate to make the cuts certainly would be an example of a lack of fiscal responsibility and justify another downgrade. Another downgrade will confirm the actions of S&P and would force interest rates up. A downgrade with a resulting increase in interest rates will compound the problem, and all the current rosy projections on the economy and the debt will drop like a lead ball thrown off a cliff.
Considering it all, from the debt ceiling talks in the summer through the failure now, Congress (and BOTH political parties) has taken a slow and calculated effort to provide every American with a lump of coal for Christmas.
But it can’t be said that this was unexpected or an unrealistic outcome. It can be said that this was timed perfectly to avoid the public outcry that was besieging both political parties over the summer. It can be said that this was timed to preserve the posturing of the political parties as they jockey their respective candidate(s) for the 2012 Presidential election. It can postulated that the reason for the sudden and chaotic appearance of the Occupy “movement” now makes sense.
The worst part is that going forward Democrats will blame Republicans, and vice versa, while the national deficit will be shoved aside for the 2013 Congress to deal with. The nation will be saddled with more debt than many nations around the world have as GDP – combined – and no resolution will be forthcoming. Another dominoe in the series towards insolvency has fallen, and the best that Congress can do is bicker about whose fault it is.
But in 2012, count on the fact that politicians seeking (re-)election will proclaim their shock and dismay that the supercommittee failed. Be prepared for the blame game, as politicians posture for safe ground. Because Congress is predictable, just like a junkie looking for a fix.
Perhaps the most amazing thing is that, knowing all this, the American public continues to allow Congress to try to ween itself off of the addiction to deficit spending. There may be crack addicts that can ween themselves from their addiction, but its not the recommended way to stop being a junkie – something that voters should keep in mind when the 2012 elections come up.