Sunday, July 15, 2012

The Moment of Truth and the Fiscal Cliff

On Friday, an op-ed by Honeywell Corp. CEO David Cote in the Financial Times mentioned, “As we approach the end of the year, we get closer to the edge of the “fiscal cliff”. If there is no political deal, the US will face a triple witching hour of automatically triggered spending cuts, the expiry of tax cuts, and a failure to raise the debt ceiling. We all saw what happened during the last debt ceiling ‘discussion’. It wouldn’t be a surprise to see the same dysfunctional process or another agreement to ‘kick the can down the road’, as they say in Washington.”  

Additionally, as focus increases on the Simpson-Bowles report (officially titled the “Report of the National Commission on Fiscal Responsibility and Reform: The Moment of Truth”), CNBC provided a joint interview with Warren Buffett, Alan Simpson and Erskine Bowles last week which included:  Buffet - “Congress has not done its job”, Bowles - “the problem's real, the solutions are all painful. And there's no easy way out” and “I think if I had to tell you the probability, I’d say the chances are we are going over the fiscal cliff” and Simpson - “politically nothing will be done between now and November 6th. it’s just posturing and guys get up and say we can get this terrible thing resolved without touching precious Medicare, precious Medicaid, precious Social Security and precious Defense.”

The focus areas of Simpson-Bowles are:
  • Enact tough discretionary spending cuts to force budget discipline in Congress,
  • Simplify the tax code,
  • Pursue “common-sense” health care reforms to physician payments, cost sharing, malpractice law, prescription drug costs, government-subsidized medical  education, and other sources,
  • Cut agriculture subsidies, modernize military and civil service retirement systems, reforms student loan programs and put the Pension Benefit Guarantee Corporation on a sustainable path;
  • Reform Social Security for its own sake, and not for deficit reduction; and
  • Reform the budget process to ensure that spending stays under control, inflation is measured accurately, and taxpayer dollars go where they belong.

MY TAKE
As global market “mood swings” continue, it is important not to lose sight that significant work remains to be done to repair the global economy.  With the U.S. political season in full swing (accompanied by aggressive fundraising and campaign spending), increased political accountability is needed on the campaign trail.  David Cote suggests focusing on the “Campaign to Fix the Debt”, which launches on July 17 fixthedebtcampaign.org.  NOTE TO WASHINGTON BELTWAY PLAYERS: we do not want another recession – get with the program or get out of town!

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