The Only Two Reasons It Matters That The Super-Committee Will Fail

UPDATE: We originally ran this yesterday, but in light of the news that the Super-Committee is destined for failure, we wanted to run it again now.

 

ORIGINAL POST: There are only two reasons anyone should care about the Super-Committee, the bi-partisan group of 12 Congressmen who are tasked with finding away to cut another $1.2 trillion from the federal deficit over the next 10 years.

As many have said, this isn’t even that big of a number, and it’s hard to know what will actually be maintained by future Congresses. The whole things is a bit of a joke.

So there are really only two reasons to care.

The first is that if it fails, there’s some non-zeo chance that we’ll get another ratings downgrade. Now the first ratings downgrade didn’t cause our borrowing costs to spike as many had predicted, but it did seem to cause a confidence shock and a blow to equity markets.

From Nomura’s George Goncalves, here’s a look at odds of various scenarios, and the attendant potential for another downgrade.

chart

For what it’s worth, the fact that he sees a 50% chance of $1.2 trillion in cuts would strike many as high.

The other reason to care about the Super-Committee is that this is the best vehicle, apparently, to ensure a continuation of the payroll tax cut, which went into place last year. It hasn’t been an amazing boon to the economy, but a reversion back to normal rates would certainly be an unwelcome drag on GDP.

That’s the extent of the importance of the Super-Committee. Any notions of changing the direction of debt sustainability or whatnot are pretty silly.

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