Stephen Foley: US politicians won't be talking turkey about the budget on Thanksgiving
Stephen Foley is a former Associate Business Editor of The Independent, based in New York. He left in August 2012. In a decade at the paper, he covered personal finance, the UK stock market and the pharmaceuticals industry, and had also been the Business section's share tipster. Between arriving with three suitcases in Manhattan in January 2006 and his departure, he witnessed and reported on a great economic boom turning spectacularly to bust. In March 2009, he was named Business and Finance Journalist of the Year at the British Press Awards.
Saturday 19 November 2011
US Outlook: The "super-committee" charged with coming up with $1.2 trillion (£760bn) of federal government debt reduction over the next 10 years has a deadline for producing its proposals of this coming Thursday, the Thanksgiving holiday. The odds are it will serve up a turkey.
This won't be a surprise to anyone who follows the inner workings (or not-workings) of Congress, and it certainly won't come as a surprise to markets.
Unlike the showdown over raising the debt ceiling in August, when the federal government came close to shutting down and even to defaulting on its bonds, nothing that happens – or doesn't happen – on Thursday should interrupt anyone's festivities. This is a deadline created by Congress, and therefore not a deadline at all.
Technically, if no proposal is produced, the failure will trigger automatic cuts across the board in government spending, including in the bloated US defence budget, but since these won't actually be implemented until 2013, there is plenty of time to change them. Similarly, the extension or otherwise of the Bush-era tax cuts, which have always been the root cause of the federal government's fiscal mess, and which is now the central issue dividing members of the committee, doesn't have to be decided until the end of next year. You'll notice that all these dates are after the Congressional and presidential elections in November 2012.
We might get another fudged deal, with some cuts agreed now and the establishment of a "super-super-committee" to revise the tax code later, under threat of automatically-triggered tax rises if it fails. Or we might get nothing.
Standard & Poor's stripped the US of its triple A credit rating in August for two reasons: the frightening willingness of politicians to use the threat of default as a bargaining chip in budget negotiations, and the demonstrable inability of taxed-enough-already Republicans and healthcare benefit-defending Democrats to cut a deal. Until the two sides can find the right balance of concessions, or one side wins a Congressional landslide, the trajectory of US debt will continue to be upwards as far as the eye can see, and the trajectory of the US credit rating will continue to be downwards.
But what we learned from the S&P downgrade, though, is that markets don't mind, at least for the moment. The agency says another cut in the rating is possible, but that it probably won't come unless the economic growth outlook markedly worsens, if Congress rows back on the automatically triggered cuts, or if investors suddenly turn against US Treasury bonds and start to demand higher interest rates.
The last one of those is linked to the other two, of course. If markets lose faith, US finances could spiral down with alarming speed. But the notion that the US could "be the next Greece" is absurd, because of the safety valve of dollar depreciation and the hard fact that there is no alternative to Treasury bonds as the currency of international financial trading.
The tragedy of these low expectations for the deficit reduction super-committee is that, by not finding new long-term tax increases and entitlement cuts, it has failed to open up the opportunity for short-term economic stimulus measures.
The biggest single threat to the US government's finances is another leg down in economic growth, and the biggest worry on that score right now is what is happening in the eurozone. When American politicians are tucking into their Thanksgiving turkeys on Thursday, it is to be hoped that European policymakers are hard at work.
- 1 Revolutionary lost Caravaggio painting 'Mary Magdalen in Ecstasy' identified
- 2 McKamey Manor: This 'extreme' haunted house is the stuff of nightmares
- 3 Russell Brand says he will 'probably' give up acting to focus on his revolution
- 4 Watch what happened when food critics were unknowingly served McDonald's
- 5 David Beckham's Haig Club whisky is exactly what’s wrong with the Highlands
Putin accuses US of causing global instability
Eleven members of same family hospitalised after eating deadly pufferfish
FCKH8: YouTube reinstates provocative anti-sexism video showing young girls swearing
Phone-hacking: The Piers Morgan connection - Mirror admits some stories during Morgan's tenure may have been obtained by illegal means
Russell Brand says he will 'probably' give up acting to focus on his revolution
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Tony Blair 'says Ed Miliband will lose 2015 general election'
Putin: The US is to blame for almost all the world's major conflicts
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...