The Super Committee – Does this really matter?

On November 16th, 2011, posted in: Economic News by

The television and new media is filled with some talking head expounding on the Super Committee – the 12 members of Congress who have been tasked with the role of cutting the deficit over the next 10 years by $1.2 trillion. That sounds like a big job and important task. But is it?
These talking heads say – the Super Committee is the biggest and most important issue facing the economy. One news anchor went so far as to say the committee’s decisions will determine how retailers do this year during the holiday shopping season. Others are trying to make the case that failure to come to agreement will cause us to slip into another recession.

You have to wonder if any of them ever look at the FACTS. According to the Congressional Budget Office, total federal government outlays in the next 10 years (2012-2021) are expected to be $44 trillion, while GDP will total $195 trillion. If we assume that the committee does not raise taxes at all, which means the $1.2 trillion in budget cuts and spending reductions, would equal just 2.7% of the budget, and 0.6% of GDP.

These spending reductions represent just $2.70 out of every $100 dollars of government spending and 60 cents out of every $100 dollars of GDP. This is microscopic in comparison – the size of a rounding error for GDP. And remember it is going to go into effect over a 10-year period! Bottom line, this committee is NOT serious about this job.

Like all government spending reductions and most tax increases, the impact is on future leaders and elected officials. It is NOT going to affect their watch. In other words, spending reductions in 2012, 2013 and 2014 are much smaller than in the later years. There will be absolutely no impact on government spending in 2011 and very little impact on spending in 2012. And if the committee fails to come to any agreement, automatic sequestration kicks in, but this won’t actually start until January 1, 2013. So, ask yourself how any of this will impact retail sales over the next few months or the economy over the next few years?

The answer is obvious to me – It can’t and it won’t.


This information is compiled by Guy Baker from an assortment of news feeds including First Trust, Yahoo Finance, Bloomburg and others. This information is intended to be informational only. This newsletter contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.



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