However, Deutsche Bank’s Jim Reid thinks that the implications of this failure go far beyond the automatic spending cuts that will be triggered in 2013.
As was increasingly feared over the last few days, last night saw the announcement that the Congressional Budget Super Committee has failed to reach a bipartisan deficit reduction agreement after over three months of negotiations. It does now throw up plenty of questions around the prospects of further extending some of the existing fiscal stimulus programs. The US also had the chance to fully show the rest of the world that the lack of political cohesion that has plagued Europe is not something that could occur domestically. Unfortunately the failure to agree on a relatively modest plan raises questions around the ability to tackle bigger problems further down the road. After what was experienced back in August, the latest impasse is further evidence of how divided the two political camps are on a subject that will get ever more attention as we approach the November Presidential elections next year.
On the bright side, expectations for Washington are now extremely low, which means they would have to do very little to gain confidence from the public and the financial markets.