Supercommittee failure could trigger US credit downgrade, economists warn

Supercommittee failure could trigger US credit downgrade, economists warn

Economists predict dire consequences if committee fails to reach agreement on how to reduce America's massive debt


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.

"Time is running out. What I can say is we are leaving no stone unturned, negotiations continue and we are looking to find a way. We recognise what's at stake and we're hoping to reach an agreement," Democrat committee member Chris Van Hollen told CNN Friday.

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.

"With all this pressure to reach an agreement, it really doesn't look good if they can't find a solution," said Ashworth.

He said that the US had much more serious problems that would need tackling first.

"The US is already spending 7% of GDP on Medicare and Medicaid [the government-run health schemes] and that will be up to 10-11% in the next two decades. Debt is on an unsustainable path, and if they can't reach an agreement on this, it doesn't look good for the future."

Ratings agency Standard & Poor's cited the "extremely difficult" political conditions in Washington when it made the controversial decision to downgrade its rating on US debt in August. The firm also put the US "on watch' implying further cuts could come.

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.

HSBC's chief economist, Kevin Logan, said a "procrastination" solution was now the most likely outcome, with an agreement that specifies targets for spending cuts and revenue increases but leaves the details to congressional committees.

Passing the the hard choices back to congressional committees would lead to "lengthy and heated battles over the US deficit throughout 2012, we believe. The rating agencies might be tolerant of this for a while, but failure to make clear progress could lead to downgrades of the US sovereign credit rating at some point next year," Logan said.

David Semmens, US economist at Standard Chartered, said: "I think they will be forced into action. If not the consequences will be long-lasting. Failure will further highlight the political deadlock in Washington. It's very important the the supercommittee sends a strong message to the markets that the US is getting its house in order."

Stock markets are already under pressure form the credit crisis now sweeping Europe and further signals of a lack of leadership in the US could have negative consequences for the markets, said Semmens.

One of the major sticking points facing the supercommittee is what to do with Bush-era tax cuts that are set to expire at the end of 2012. Republicans are against any agreement that does not extend current income-tax rates.

Democrats want them extended only for lower- and middle-income Americans. Extending all the Bush tax cuts would add about $3.7tn to the deficit over the next decade.

Like the automatic deficit cuts, the Bush-era tax cuts too will automatically expire unless an agreement is reached. Gus Faucher, director of macroeconomics at Moody's Analytics, said: "We will see deficit reductions whether the super committee makes an agreement or not."

He said the "level of enmity" between Republicans and Democrats did raise concern, but he expects that some agreement will be reached.

http://www.guardian.co.uk/world/2011/nov/18/supercommittee-failure-credit-downgrade-warning


There is no way that the Democrats are going to put the nation before themselves, so they will not allow entitlements to be cut. Therefore, the US will continue on the road towards a EU-style failure. The Democrats must be defeated en-mass next fall.


_

 

on what authority was this committed even created ?? why does everything have to be super ? i'm still trying to figure the legality of super delegates. and it seems as if obama and the dems are reaching far beyond handcuffing the nect congress or president. if never heard of a president making laws for so far into the future. i hate to say it but that's dictatorial in nature.

 

I believe they must have meant stupor, not super.

 

NEWS FLASH! THIS JUST IN! A downgrade is going to happen anyway.

What else does one think is going to happen with national debts such as this nations, and a current Executive who still continues to spend money we don't have, like a sailor, who just got paid, is on shore leave, in a whore house with all the whiskey they can drink?

Seriously liberals and leftists, if you are so worried about the credit standing/grade of this nation fine, then it's time to get serious, quit playing your little self serving political games attempting to justify and excuse, or simply ignore every idiotic, asinine, stupid thing Obama has done/does.

Like destroying jobs killing oil exploration etc....

And get off your backsides, and vote that leftist, liberal socialist Barack Obama, and the rest of his liberal leftist socialist cronies out of office in the coming few election cycles. Yes I said it liberals and I meant it.

(Frankly as is the case with the RNC but only in reverse as they need to get rid of the liberals in disguise attempting to hijack that party, yeah that's you Carl Rove cough cough ahem Bill Crystal cough cough ahem John Boehner, it's way past time the DNC got rid of the socialists who've hijacked that party, and returned to their classical liberal roots but I digress)

Otherwise, if YOU liberal (generally speaking) do not wish to vote this leftist Obama and the rest of his cronies out of office.

IF you want to sit around, and try to defend and justify the policies Obama and his cronies put forth, IF you want to sit in here and try to excuse, support, and convince the rest of us that we should also.

Then fine. Shut the hell up and quit boohooing, (*)(*)(*)(*)(*)ing, and whining about our credit standing being downgraded when it happens, to that of some third world cesspool like oh I don't know, take your pick of most any Arab state....

Because now, at this point in the game, IF he is not defeated in the next election, IF the socialism of Obama and his liberal cronies continues, and is only pushed further and with more abandon (as it will if he has a second term) YOU (generally speaking) liberal, will have no one else to blame but that of yourselves, and your fellow liberals.

It's not like, you weren't warned by we Conservatives and Constitutionalists all over the place, and at every chance we have had to do so.

 

buy land..

 

Defaulting to disaster...

US deficit ‘super committee’ stalled as deadline looms
Mon, Nov 21, 2011 - Both sides of the US Congress’ deadlocked “super committee” held separate talks on Saturday, but formal negotiations remained stalled, reaffirming gloomy predictions that the deficit-fighting panel might fail.

 

Irresponsible spending has made credit downgrades inevitable unless we change course.

Yet the media will blame the super committee.

I suppose the fig leaf of the debt ceiling fight causing the downgrade will be removed. But I don't think anyone really believed that anyway.

 

Buy guns

 

President Downgrade will strike again.

 

Barack Obama...the only President in American history to have not one, but TWO credit downgrades occur in a single term. What a failure.

 

Gee whillikers folks. I wonder where we'd be as a nation had we NOT lowered taxes to unreasonable, irresponsible and irrational levels in 2000, and THEN started a massive, expensive war with a country that didn't attack us and weren't a direct enemy, and THEN passes a Medicare D entitlement program that is a cash behemoth for private businesses at the expense of the taxpayer, and THEN deregulate wall street to bring all of the artificially propped up gains crashing to the ground when they lied and cheated the American people out of jobs and any money the middle and lower classes used to have?

Of course, this is ALL the fault of Obama, because in 2000, he didn't start doing things to prevent all of these problems from existing once he became president.

If taxes don't get raised right now, then our country deserves to burn to the ground. Not a single Republican voter should EVER be allowed to make a statement about someone else ruining our country. Its a joke. The funny thing is, since most can't read and write, we could solve this problem by taking the "R"s next to candidates names off the ballots, and suddenly we'd be in a much better situation.

 

Imagine how much worse it would be if we passed his "jobs bill" stimulus II.

The easiest thing to do to try to solve a problem is throw money at it.

 

Imagine where we'd be if Social Security was still in a "lockbox"? If revenues had been steady and the budget still balanced circa 1999? Yup, all Obama's fault.

Does ANYONE on the right have any real solutions, or is your deflection of the blame truly based out of complete and total ignorance and lack of self awareness? The budget has been reduced ever year since Obama's first in office (and it went UP every year of Bush's tyrannical reign). Most every dollar in the budget was already in place when Obama took office (minus the funds used to prop up the economy and save us from depression) and GOP has fought EVERY decent proposal for cost cutting measures and revenue increasing budget reducers.

But of course, we should never accuse any of you of spinning a situation to blame anyone but the real problem causers.

 

Wow, going back now to blame Clinton as well? (Bush didn't take office until 2001) Obama has been running deficits far greater than that of Bush.

The problem is, if Obama wanted and needed to spend money to get the economy going, he should have done so by cutting in other areas, which he did not do.

I am not going to sit here and say Bush was a saint, he wasn't, however, the dems took over congress in Jan 2007 until just this past year.

Both parties are to blame, but Obama is not really smart considering he is running such huge deficits that our nation can't afford.

Can you remind me what the national debt was when Bush left office and what it is now?

 

Whats going on with the Supercommittee is simple.Democrats are using
it as a Rallying cry to bolster the Lie that Republicans are rigid and
only interested in stalling the Economy until their chance at
recapturing the Senate,next fall.
Democrats led by Chris Van Hollen have made the concerted decision
to use projection as a means of Policy.They will accuse and blame
those Republicans on the Committee for what THEY are guilty of.
Namley ... Intransigence.
Republicans may appear unflinching on New Taxes but not nearly as
intransigent as Democrats are towrds Spending cuts,especially entitlement
reform.
This is not a battle of wills,but a battle of Liars.Democrats are up to their
old tricks.Laying blame before blame is even established.Who do they think
their Kiddin' ... :

Elmer Fudd

 

Most reasonable, rational Democrats do not agree with you, BTB!

You really need to get over your complusion for "class envy"!

"A bill will be presented to the Congress for action next year. It will include an across-the-board, top-to-bottom cut in both corporate and personal income taxes. It will include long-needed tax reform that logic and equity demand ... The billions of dollars this bill will place in the hands of the consumer and our businessmen will have both immediate and permanent benefits to our economy. Every dollar released from taxation that is spent or invested will help create a new job and a new salary. And these new jobs and new salaries can create other jobs and other salaries and more and more growth for an expanding American economy."

– John F. Kennedy, Aug. 13, 1962, radio and television report on the state of the national economy

 

You want cuts? You will get them automatically if Super Committee doesn't reach to any conclusion. Win/win for you...

 

Ask any Democrat or Liberal to give you the name of THAT Democrat
who during the Bush years towed the line on spending.
Ask for the Name of that Democrat Senator or Congressman who
didn't spend like the Bush Republicans.Didn't take a single earmark.
There isn't a single Democrat.Therefore they are Pure Hypocrites.
John Boehner on the other hand has never taken Earmarks.

 

Each House of Congress has the authority to create rules for its own procedures...

 

It was to mitigate the recession caused by the collapse of the dot-com bubble. Right now, those same cuts are mitigating the effects of the collapse of the housing bubble.

We would have been out of Iraq before the end of Dubya's first term if not for Paul Bremer's criminally insane policy of de-Ba'athification...

The abolition of mandatory minimum reserve ratios for banks certainly made the crash worse, but the housing bubble itself was caused by leftist over-regulation that coerced banks into giving loans to people who were bad credit risks.

Keep hitting that bong, dude.

 

wow obama sure is a morale and economic butcher.

 

remember reid's omnibus from last christmas.. that war is lost.

 

We need more Cowboy Poetry.

 

It is a bi-partisian committee, yet it is the democrats fault for not slashing entitlements. What entitilements are those you say. Yes, the republicans want to take the money from everyone in social security taxes, and then fail to pay them social security, those entitlements.

Why is it not at least equally the republicans not will to put the nation first and agree to a balanced approach of cutting spending and taxing at rates that would be higher, but still well below historical averages?

So let's look at what the american people say, and they say they want the balanced democratic approach. They want to raise some taxes and not destroy social security.

But the right wingers on here say, screw what the american people want, screw compromise. That is putting america first, I don't think so.

 

You do know that congress controls spending, not the President. And the congress is republicans and the republican congress would be responsible for two credit downgrades, not Obama

The republican congress, the only congress to get two credit downgrades in a single term.