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Supercommittee Going Gimmicky, Markets Set to Panic?

by Brandon Greife / /

Shot: In an op-ed for Politico, Moody’s chief economist Mark Zandi, explains the potential disaster that lays ahead if the Deficit Supercommittee relies on budget gimmicks to achieve its deficit target.

“On the darkest path, the committee relies on budget gimmicks – like an assumed winding down of the Iraq and Afghanistan wars – to achieve its $1.2 trillion goal in 10-year deficit reduction. The panel could then avoid substantive government spending cuts similar in size to those that would automatically occur beginning in 2013.

Using gimmickry would signal financial markets that it is hopeless to believe Washington can address the nation’s long-term fiscal problems. . . Financial markets would be thrown into turmoil, upending the already shell-shocked collective psyche. The economy would descend back into recession . . .”

Chaser: In a story entitled, “Gimmicks Could Help Rescue Deficit Talks,” the Wall Street Journal reports that it is looking increasingly likely that budgetary sleight-of-hand will be used in any bipartisan deal.

“With Congress’s deficit-reduction supercommittee barreling toward a deadline for striking a big budget deal, both parties are reaching for accounting gimmicks to help reach their target of $1.2 trillion in savings over 10 years.

Some tools are familiar to old Washington hands, such as massaging budget assumptions and painting rosy economic scenarios. Others include taking credit for “saving” money on wars that are ending and putting off until next year what lawmakers don’t want to deal with now.”

Bottom line: Unless Congress gets serious about the need for real deficit reduction to ease jittery markets, Americans should brace for a wicked hangover.