Supercommittee Strikes Out – by Stephen Lendman
On November 20, New York Times writer Eric Lipton headlined, “Lawmakers Trade Blame as Deficit Talks Crumble,” saying:
Hours away from their self-imposed deadlined, “Congressional leaders conceded Sunday that talks on a sweeping deficit agreement were near failure and braced for recriminations over their inability to reach a deal.”
Republican aides said lawmakers will end their negotiations with a whimper, not a bang. Expect no final news conference, just a quietly issued joint statement and follow-up comments.
By law, automatic $1.2 trillion in cuts over 10 years will start in 2013. They’re to be equally divided between defense and domestic programs. Don’t bet on it.
Expect sustained military spending at the expense of what people value most. Either way, lost purchasing power means less spending, fewer jobs, and greater public anger than today’s high levels.
Both sides blamed the other. Democrats said Republicans wouldn’t yield on tax hikes. They pledged none, no matter what.
Republicans called Democrats inflexible, especially on Medicare, Medicaid and Social Security cuts.
The Congressional Budget Office (CBO) estimated that domestic programs, including education, transportation and immigration would be cut by 7.8% in 2013 and Medicare would lose 2%. Defense would be reduced 10%.
For now at least, Medicaid, Social Security and veterans’ benefits are spared, but that could change. Members of both parties oppose defense cuts. Expect “entitlement” reductions instead, despite exemptions under the automatic “trigger” procedure.
Failure complicates extending end of year expiring payroll tax cuts, unemployment benefits, and other tax breaks experts say could shave over a percentage point off already weakening growth.
Troubled Eurozone economies are crumbling. Nonetheless, ECB president Mario Draghi says it’s “heading toward a ‘mild recession’ by the end of the year.”
He knows the truth but suppresses it. So does Wall Street. They’ve seen Eurozone bond yields rise, in some cases to alarming levels. Across America and Europe, millions are raging against policies they want changed.
Economist David Rosenberg asked if Italy is another “Lehman event?” Not exactly, but they’re similar. Confidence lost is tough restoring. Italy has to roll over $500 billion of maturing debt next year, $800 billion through 2014.
At 7% yields or higher (the same tipping point that drove Greece to default), it’s impossible to meet fiscal targets markets demand. Italy faces a classic Catch-22 dilemma. The difference is Lehman had $150 billion in outstanding bonds. Italy has $2.5 trillion, the Eurozone’s largest bond market by far.
Wall Street banks are called too big to fail. Italy’s too big to save, and without monetary and fiscal sovereignty, it can’t print money, add fiscal stimulus or devalue its currency to boost exports.
Italy’s financing needs are so huge, it’ll have to hold near weekly bond auctions for many months or years. One or more failures seems likely followed by severe repercussions.
Other troubled Eurozone sovereigns face similar problems. So does America. Its annual deficit approaches 11% of GDP. Weakening economic conditions next year will drive it higher.
Total government debt (including US agencies) as a percent of GDP exceeds 118%. France’s borrowing costs surged 2% above Germany’s, more than triple the worst 2009 level.
Whatever steps America takes to curb debt won’t work. Unlike Eurozone measures, they’re slowdowns, not reductions. Either way assures failure when stimulus is needed.
Key also is congressional paralysis to address financial crisis conditions too grave to ignore or delay. Major credit rating agencies plan “negative outlook” US Treasuries downgrades.
Merrill Lynch believes they’re coming, saying:
“The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the Super Committee crashes.”
Ahead also, expect higher defense spending, lower corporate taxes or no hikes, Bush era cuts for the rich untouched, and major reductions to Medicare, Medicaid and other social programs to make people pay, not Wall Street, other business favorites, and America’s super-rich already with too much.
Progressive Radio News Hour regular Bob Chapman says Supercommittee members plan billions of dollars in secret farm bill handouts to prop up failed agricultural policies. Now passed their self-imposed deadline without agreement, expect Congress to do it.
At the same time, automatic triggering will impose cuts. Congress must vote them up or down without amendments, debate or delay.
Expect more benefits for corporate favorites, higher deficits despite reductions, America’s fiscal mess increasing, and economic conditions becoming worse than ever.
Bad policies produce failed results. It’s just a matter of how bad, how soon.
Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.
Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
http://www.progressiveradionetwork.com/the-progressive-news-hour/.
