Everyone is coming out with their forecasts for the super-committee.
The latest is BofA/ML’s well-known Michelle Meyer, who takes a longish look at what might plausibly be accomplished.
Her baseline assumption is that nothing real will be agreed to.
And she identifies three key flaws with it:
- The process has added to economic uncertainty.
- It’s still aiming too small.
- And any cuts they make might not be sustainable.
The only good thing, ultimately, she says, is that it’s pushing the debt ceiling fight further into the future.
Finally, in her view the real problem is…
We have met the enemy and he is us
The tragedy in all of this is that the looming US fiscal crisis is surmountable, in our view. The US is in a better position than many other developed economies: we have a growing working-age population, our spending on military and medical is very high and our taxes are relatively low. What we don’t seem to have is a sensible decision-making process. The current “policy” is to repeatedly threaten, but not deliver, serious fiscal consolidation. We have already had several threatened shutdowns, and one threatened default. Threatening and then not delivering austerity hurts confidence and growth, adding to the budget deficit, in our opinion. This is the opposite of what is needed: a gradual austerity plan that takes into account the fragile nature of the recovery.
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