Sunday, July 31st, 2016

Super Committee Fails and stocks dive

The Super committee entrusted to cut debt spending 1.2 Trillion dollars has failed. Its deadlocked as expected and we are back where we were in August. Stocks have taken a cue in the past and will go down for few more days. Market does not like this kind uncertainty on top of European debt woes that have ringing alarm bells all Summer long. Now there will be mandatory cuts as a part of deal negotiated during debt crisis in August.

The White House and Republicans are now, so far apart, that the general framework of things has become dysfunctional. These lawmakers are now locked up on both sides. It does not takes much to understand why this has happened. The extreme positions have been there all along and yet there was this hope and feeling that something better will work out. Congressional Republicans and White House have disagreed in August and than kicked the can down the road, to have a group of lawmakers, to decide the balance of cuts by November, namely $1.2 trillion dollars in deficit cuts. Now that itself is no brainer. When you have an option not to agree built into the deal, why would you try very hard to agree? That is what happened here. No one walked in with good faith, to try to get better results. Both sides deadlocked on party line differences and rendered the outcome useless.

The Super committee was a fake optimism drawn up during debt crisis that saw US credit downgrade subsequently. If nothing is done and both sides continues to Grandstand and bicker there are 7.1 Trillion dollar in cuts they will come automatically in the deficit reduction. There is another basketful of $3.3 trillion dollars cuts coming when Bush era tax cuts on capital gains, income and dividends expire. It is foreseeable, why this do nothing approach may be the best answer. The option was lets grandstand this time, and its done automatically. There is also another 300 Billion that Congressional Republicans may cut in spending if this gridlock prevails as per other arrangements already in place.

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