US Differs Debt Crisis

US lawmakers could push Fiscal Cliff deadlines into Y 2013

The US Congress may be arriving at a consensus on how to avoid falling off the Fiscal Cliff on 31 December by simply putting off its own deadline for most of the major year-end budget and tax decisions.

That approach would delay the day of reckoning while also allowing more time for compromise in a Congress that has battled for 2 yrs over how best to reduce huge budget deficits.

No formal agreements have been reached, however, and turning a consensus into an actual deal that avoids jolting the markets or economy will depend on the results of the November 6 general election.

The Cliff refers to the year-end deadline for the expiration of hundreds of billions of dollars worth of tax cuts and the triggering of $109-B in across-the-board spending cuts. The non-partisan Congressional Budget Office has said the scenario could throw the country into recession.

Congress created the hazardous end-of-year deadline in August 2011 when it agreed to a deficit deal as a way out of a deadlock over raising the US debt ceiling.

In recent weeks, lawmakers from conservative Republicans to liberal Democrats in the Senate and House of Representatives, have alluded to surprisingly similar hopes for the high-stakes “Lame Duck” work session that will follow the November presidential and congressional elections.

They would put aside the $109-B in “automatic” across-the-board spending cuts that otherwise would hit military and domestic programs equally.

They would make some new, possibly smaller down payments on deficit-reduction for the near-term. Then they would write a new deadline, maybe 31 March or 30 June to come up with a $4-T deficit-reduction program over 10 yrs; and devise a new method for forcing a divided Congress to act.

The entire exercise would be aimed at finding a long-term fix for US fiscal problems without the jolt of indiscriminate spending cuts and tax hikes that would occur under current law.

The threat of a possible recession after such blanket spending cuts now preoccupies Washington.

Among the fearful are the big-company CEOs represented by the Business Roundtable, for example, and Ben Bernanke, the chairman of the US Federal Reserve, who briefed members of Congress this week after declaring that “I don’t think our tools are strong enough to offset the effects of a major fiscal shock” of the cliff.

The most vocal Democrats and Republicans in Congress have turned the floors of the House and Senate into pre-election spin rooms as each side tries to pin the blame on the other.

But a stream of ideas to delay the December 31 day of doom floats through Capitol Hill brainstorming sessions.

Liberal Democrat Dick Durbin, the second-ranking Senate Democrat, has alluded to a six-month delay, coupled with a $40 to 50-B deficit-reduction down payment for 1-H of the year.

Conservative Republican Senator Lindsey Graham has touted a “mini deal” in November or December to delay decisions through March. It would contain a $20-B deficit cut.

In the meantime, a Congress that made deficit reduction its central theme last year is winding up with little to show in the way of actual deficit reduction.

The numbers tell the story. Federal Red Ink in Y 2009: $1.4-T. The Y 2011 deficit: $1.3-T. Projected Y 2012 deficit: $1.1-T.

Paul A. Ebeling, Jnr.Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

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