Shakespeare Nails the Supercommittee: News Analysis

LPL and T. Rowe Price assure that supercommittee failure signifies nothing

A meeting of the deficit supercommittee earlier this month. (Photo: AP) A meeting of the deficit supercommittee earlier this month. (Photo: AP)

William Shakespeare may have been envisioning the Joint Select Committee on Deficit Reduction, the so-called supercommittee, when he wrote Macbeth’s famous soliloquy:

“Tomorrow and tomorrow and tomorrow,” Macbeth began, referring to Congress’ proclivity to put off important national decisions indefinitely, “creeps this petty pace from day to day.” Of the doom the U.S. faces if it fails to get its finances under control, the Bard continued “all our yesterdays have lighted fools the way to dusty death.” Of the supercommittee, he added simply: “Out, out, brief candle!”

And of the whole sorry saga, from the failure to agree on a debt-ceiling plan on time to stave off a credit downgrade by S&P to the current supercommittee impasse on achieving $1.5 trillion in deficit reduction over 10 years, Shakespeare seemed to say of our national economic life that it is “a tale told by an idiot, full of sound and fury, signifying nothing."

Jeff Kleintop of LPL FinancialWhile it is not entirely clear that the Bard of Avon was having a vision of the U.S. Congress four centuries into the future, financial services industry insiders seem to share his analysis. Chief market strategist for LPL Financial, Jeff Kleintop (left), in his weekly market commentary released Tuesday, suggests the supercommittee follies ultimately signify nothing, since “there is no debt ceiling or potential default looming this time.”

As part of Congress’ August debt deal, the U.S. won’t face a debt-ceiling issue until 2013 and the legislation passed then provides for the event of the supercommittee’s failure through automatic cuts amounting to $1.2 trillion over nine years. That is why Moody’s, Standard & Poor’s and Fitch are unlikely to take any seriously negative action before 2013 if they don’t observe steps toward fiscal consolidation at that time.

While many worry about the harshness of sequestration cuts, which fall heavily on defense and the elimination of the Bush-era tax cuts, Kleintop predicts the sequester plan will never take place. “This is because there is likely to be a major deficit reduction package in 2013 under a new GOP-dominated Congress following the 2012 elections.”

Meanwhile, at a T. Rowe Price media conference Tuesday in New York on the investment and economic outlook for 2012, T. Rowe’s chief economist, Alan Levenson, added to Kleintop’s (and Shakespeare’s) view of the non-significance of the supercommittee, calling it a “three-ring fiscal circus” and adding, to laughter in the room, “I don’t think we should use the word ‘super.”’

Levenson said downside risks in the U.S. outlook include deeper fiscal austerity, whether intended if lawmakers agree on a budget or unintended if there is no compromise. He added, sagely, “Be prepared for the silliest outcomes you can think of.”

While financial industry types seem to be writing this off, political types are getting hot under the collar, assigning blame. Kevin Drum, blogging for liberal Mother Jones, wrote: “Democrats were willing to propose cuts in domestic programs. It was exactly the same dynamic that played out during the debt ceiling debacle, with [President Barack] Obama persistently offering up big plans that included significant entitlement cuts and Republicans flatly rejecting them because they also included new revenues.”

And Jeffrey Anderson, blogging on the conservative Weekly Standard’s site, wrote: “Yet, in the face of a $15 trillion national debt, the deficit committee… couldn’t bear to force the federal government to make do with just $44.57 trillion over the next decade, instead of $45.77 trillion. Or, rather, one party’s deficit committee membership couldn’t bear to do this— as that party’s membership instead focused primarily on trying to raise taxes.”

Ultimately, for America’s story of fiscal redemption to be told in a coherent way in other words, to reverse Shakespeare’s “tale told by an idiot” slight–the United States will have to unite behind a single, dominant vision of the size and purpose of government following next year’s presidential election. But until then, it’s safe to expect a lot more sound and fury.

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Note: AdvisorOne’s Joyce Hanson contributed to this report.

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