Tuesday, November 22, 2011

Some Straight Talk on The U.S. Federal Budget and the Supercommittee

Starting Sunday, the media message was "Supercommitte Failure" and Sequestration Budget Cuts.

Sometimes the media are stupid.
The fact that the supercommittee didn't come to an agreement was no surprise to anyone who is paying attention which means almost anyone who has serious money in assets that are marked-to-market daily.

The committee was designed to "fail".

From the fact that it consisted of an even number of members to the lackadaisical approach (what did you think of the Redskins Senator?) it was political theater.

Enough from me, Here's someone who actually knows this stuff.
Jamie Dupree writes the Washington Insider column/blog for the Atlanta Journal-Constitution and is as straight a shooter as you're going to find in D.C.
From the AJC:
Super Committee Failure
Instead of a weekend marked by round-the-clock negotiations, members of the special House-Senate deficit "Super Committee" spent the weekend pointing the finger of blame at each other, laying the groundwork for the announcement that the panel has failed to reach a deal.

If there is no agreement, that means across-the-board automatic budget changes would begin in the Fiscal Year 2013 budget, starting on October 1 of 2012, from both defense and non-defense accounts.
In other words, even though the Super Committee seems to have failed, it doesn’t mean that the budget will avoid any deficit trimming.

I am going to avoid using the phrase “budget cuts” while describing what’s going to happen here, simply because too often the word “cuts” is used to describe how a scheduled budget increase is just going to be reduced.

So, let’s take a look at the budget numbers involved here.
The overall discretionary budget spending caps would look like this:
  • 2012 - $1.043 trillion
  • 2013 - $1.047 trillion
  • 2014 - $1.066 trillion
  • 2015 - $1.086 trillion
  • 2016 - $1.107 trillion
  • 2017 - $1.131 trillion
  • 2018 - $1.156 trillion
  • 2019 - $1.182 trillion
  • 2020 - $1.208 trillion
  • 2021 - $1.234 trillion

  • What’s the first thing that strikes you there? The size of the federal budget is slated to increase over the ten year period covered by the August debt limit deal known as the Budget Control Act.

    So, when we talk about “across the board budget cuts” that would occur in the future because the Super Committee couldn't reach a deal, we are talking about lowering these same spending caps.
    Here is how the Congressional Budget Office sees this process:

    “CBO estimates that, if no legislation originating from the deficit reduction committee was enacted, the automatic enforcement process specified in the Budget Control Act would produce the following results between 2013 and 2021...MORE
    See also Mr. Dupree's "Super Committee – What’s Next". So when the talking heads started babbling about the supercommittee failure as a proximate cause of yesterday's market decline I started giggling.
    And wondered who was on the other side of the seller-initiated transactions.

    [it was a manly giggle -ed]