This evening is not good for anyone who cares about the US and the world economy. As the asian markets come close to opening here's what Australia's top bond analysts are thinking:
Michael Turner, a Sydney-based strategist for RBC Capital Markets, said the Boehner plan may not be good for saving the Triple-A debt rating of the U.S.
“This is unlikely to please ratings agencies, particularly S&P who have been the most vocal in expressing a need to see a longer term deficit reduction plan sooner rather than later,” Turner said in a note to clients.
The chance of a technical default by the U.S. is still seen at around 20%, said Jack Albin, chief investment officer at Harris Private Bank.
Not pretty. As I write our POTUS is meeting exclusively with Democratic leaders at the WH. Apparently Harry Reid is the man with the plan du jour.
More on Reids plan from Marketwatch:
Reid, meanwhile, is working on his own plan, which would increase the debt ceiling by $2.4 trillion to make it through the next presidential election and include spending cuts that were greater than the debt ceiling increase, but wouldn’t include the tax increases that derailed the Obama-Boehner talks.
Boy, that doesn't sound too good does it? Nope, even a Republican could see the fair and balanced-ness of getting more than a dollar for dollar cut with zero revenue to vote on... yep, even a Republican SHOULD be happy with that. Buy WHY SHOULD A DEMOCRAT.
ARRGGHHH, my blood is almost ready to boil, except... that's not the whole story. Listen y'all....
So over a trillion of the Reid "cuts" are reductions in the pentagon budgetary baseline, which since Obama took office, have included Iraq/Afgan expenditures. Take them out and you save a lot of money over ten years. Reid includes zero cuts in the Big Three, SS, and the Medi's. Probably a little over $1Trillion comes out of real descretionary spending, hopefully some real defense money but mostly stuff we would really care about. It would still be a pound of flesh but we get to pick what part of our arse the pound comes from.
But still, no revenue. The little guy still pays all the bill, WHERE'S THE FU@#ING POUND O' FLESH FROM THE RICH FAT CATS AND HEDGE FUNDERS!? ARRGGHHHH AGAIN.... but wait, there is a salvation care of S & P. Remember the quote from our chap in Australia:
... the Boehner plan may not be good for saving the Triple-A debt rating of the U.S.
“This is unlikely to please ratings agencies, particularly S&P who have been the most vocal in expressing a need to see a longer term deficit reduction plan sooner rather than later,” Turner said in a note to clients.
Nope, the bond vigilantes don't just need $2.5T in vaporware spending cuts, they need revenues because that's the only thing they can count on. Cuts depend on future congresses, taxes are gifts that keep on giving. Republicans simply won't vote for taxes... read my ass: THEY.WON'T.VOTE.FOR.TAXES.
Fortunately they never will have to. All Congress needs to do is pass John Boehners debt bill and pass it over to the Senate, where Harry Reid can strip out the whole thing and replace the language with his $2.5T 24 month solution. Pass that and you might even get a straight up vote at the eleventh hour in the lower house. Now the bill goes over to the White House with hours to spare.
On his desk, next to the actual bill will be a prepared signing statement that basically would read thusly:
" To ensure the permanent creditworthiness of the USA I will not allow any renewal, in any manor, of the Bush tax cuts, thus insuring $3.7T additional revenues in the next 10 year timeframe."
Now, you have a year to create new, better, tax cuts for people making under $250K that will still net at least $1.5T in revenue. Bush Tax Cuts will no longer exist, replaced with the Obama Tax Cuts. The Tea Party Congress will be under the gun to make a fair tax cut that really helps people who really need help.
- GIANT Deficit Reduction
- REAL Revenue from those who won't miss it
- PERMANENT Protection of SS, Medicare and Medicaid
- LASTING Proof that Democrats are the party of honest fiscal responsiblity
If odds of default are 20%, then odds of the POTUS preemptively vetoing renewal of the Bush Tax Cuts via signing statement is <10% BUT, it might be the only way to actually protect our economy from the bond vigilantes who have ravaged over Europe like Debt Dementors. Try and think of anyother option... try.