In case you haven’t checked your calendar recently, the clock is ticking on the supercommittee’s plan to cut the national deficit — which is due November 23.
A refresher: The supercommittee was charged with the task of reducing the deficit by $1.5 trillion over the next 10 years by the November deadline as part of the debt ceiling deal. If they cannot settle on at least $1.2 trillion of reductions, then automatic cuts on defence and discretionary spending will kick off in 2013. There is also the possibility of a half-deal, where the committee may decide on, for example, $800 billion of deficit reductions, and $400 billion of cuts will be automatically triggered.
Here’s the breakdown of scenarios from JP Morgan:
- No deal: 15% possibility that no deal is reached, GDP growth would immediately slow in 2013.
- Partial deal: 50% possibility that they will agree on some reductions, and the automatic spending cuts will be less impacting on GDP growth.
- Done deal: 30% possibility of reaching $1.2 trillion in cuts, which would basically see the completion of the group’s task.
- Big deal: 5% possibility that the committee may find up to $1.5 trillion in reductions.
But the JP Morgan research note points out that although time is bearing down on the supercommittee, there are more crucial issues that need to be considered. The 2% payroll tax holiday and the emergency unemployment benefits are expiring at the beginning of 2012, and the stimulus spending is wearing off. Those issues will have a far more immediate effect on the economic outlook for 2012.
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