A Super Committee Failure: Does it Matter?
Many have argued that the failure of the congressional Super Committee to produce $1.2 trillion in deficit reduction over a ten year period could lead to major turmoil in financial markets. According to this view, in the face…
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The “Super Committee” was nothing but political theater from the beginning. No one that I have spoke with ever expected it to come up with anything meaningful and the reaction from both sides the minute the failure was announced pretty much confirms that premise.
Had they succeeded in finding $1.2 Trillion in “cuts” over 10 years you are really only talking about $120 Billion out of $3.6 Trillion currently being spent with projected increases of 5-8% annually because of the way congress establishes it’s budget. That would be the equivalent of Danica Patrick trying to brake her race car using stiletto heels (yes I could have used a different analogy but come on…Danica Patrick driving a stock car in stiletto heels…!).
The biggest issue concerning the debt is the speed of growth over the last 10 years and the lack of desire by the political establishment to take any serious action about it while we can still borrow at historically low interest rates. Instead we have seen a government that is hell bent on growing itself under any circumstance at the expense of private sector investment. Private sector GDP (GDP less government spending) has been flat for the last decade making it more difficult to pay for current spending demands let alone long term debt.
Once we reach the tipping point where we cannot pay our way out through the private sector (remember, government employees pay no taxes), the Fed will have no choice but to inflate it’s way out of debt and THAT is the real risk to the equity markets.
When that point is reached is anyone’s guess, but I’d rather see something done now instead of waiting for it to get worse.
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Let’s be honest and admit the super committee was set up as a strategic political ploy to blame republicans as the do nothing party for the reelection campaign. It was never meant to scale back the baseline spending that the American public wants. What it does show is that America needs to start really getting serious about implementing term limits on elected officials and only then can we start getting fiscal discipline, when elected officials are not a permanent fixture in the government. Markets would respond best to better government management and efficiency. Not bureaucracy and inefficiency
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