Let US Debt Supercommittee Finish Off America

It's hilarious that some delusional Americans think they're getting the better of things by putting off fiscal adjustments Europeans have either voluntarily undergone or are being forced to undergo. (Ditto with the EU itself.) In many ways, it's the same kind of deficits-don't-matter happy-go-lucky attitude they've exuded right before the global financial crisis they literally financially engineered and afflicted the Eurozone with for good measure. Trot out all the old reasons for good measure: the dollar remains the world's standard currency, the US makes problems for everyone else and not the other way around, we can still borrow so cheaply despite an S&P downgrade, etc.

Well, for those waiting for the United States to get its (much-deserved and long overdue) comeuppance, there is a worthwhile event on the horizon: the imminent failure of the so-called debt supercommittee. The latest word is that it has not only failed to meet its $1.2 reduction target over a 10-year period, but that it failed to agree on an amount which already falls well short of that amount:

A high-profile congressional effort to trim stubborn budget deficits appeared near collapse on Friday as Democrats rejected a scaled-back proposal from Republicans that contained few tax increases.

With Democrats and Republicans on a deficit-cutting "super committee" deadlocked ahead of a Wednesday deadline, House of Representatives Speaker John Boehner floated an offer to try to break the logjam on tax increases and benefit cuts. The plan would save $643 billion over 10 years, about half of the panel's goal of $1.2 trillion, but the two sides were unable to even agree what was in the plan.

As you probably know, automatic reductions--about half each to military and civilian spending--will kick in during 2013 worth $1.2 trillion should the debt supercommittee fail to identify particular programmes for the chopping block. Recall my recent post about how failure to come up with a credible (read: real, not fictional revenue increases or budget reductions with bipartisan support) agreement to address future budget deficits.

Alike in Europe, there are already obvious hints emanating from Washington that further scrutiny of these credit agencies should they have the cheek to deliver further much-needed downgrades to US sovereign debt:

The controversial companies known as credit-rating agencies are drawing fresh scrutiny from officials in the United States as they weigh whether to downgrade U.S. government debt should Congress fail to come to an agreement to reduce borrowing.

The credit-rating firms — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — have said that they could downgrade U.S. debt if Congress does not find at least $1.2 trillion in budget savings over a decade, or if the economy worsens significantly in coming months...Congress is set to automatically cut $1.2 trillion in domestic and military spending starting in 2013 if the committee deadlocks. But the U.S. credit rating would be imperiled if lawmakers tried to postpone or reduce the automatic budget cuts.

There is a lot of opinion out there on what would trigger a downgrade. Some believe that it would be reneging on the automatic $1.2T worth of cuts starting in 2013. I, however, believe that the quotations above from S&P and Moody's respectively spell things out in a straightforward fashion (as far as credit rating agencies are concerned). That is, no credible plan to deal with gargantuan deficits the US is running into perpetuity = a second S&P downgrade and a first from Moody's in the next few months.

As certain other countries have demonstrated, the road to junk status is not a particularly long one. A severely messed up one should get there in no time whatsoever. With that in mind, I fully expect the US debt supercommittee to continue the process of finishing off America. In the final analysis, the United States fully deserves the leaders it gets.