Stephen Foley: US politicians won't be talking turkey about the budget on Thanksgiving

 

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.

PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Austen Lloyd: Company Secretary

Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

Citifocus Ltd: German Speaking Client Specialist

£Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

Citifocus Ltd: Performance & Risk Oversight

£Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

£90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

Day In a Page

Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

Christmas Appeal

Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

Is it always right to try to prolong life?

Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

What does it take for women to get to the top?

Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

Knitting pretty: British Christmas Jumpers

Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

French chefs campaign against bullying

A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

Just what you need on a New Year hangover...

Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Cuba set to stage its first US musical in 50 years

Cuba to stage first US musical in 50 years

Claire Allfree finds out if the new production of Rent will hit the right note in Havana
Christmas 2014: 10 best educational toys

Learn and play: 10 best educational toys

Of course you want them to have fun, but even better if they can learn at the same time
Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

Paul Scholes column

I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

Lewis Moody: Lancaster has made all the right calls – now England must deliver

So what must the red-rose do differently? They have to take the points on offer 
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game