It’s a bird! It’s a plane! No, wait… it’s the Super Committee!
In an attempt to assign the responsibility of producing spending cuts to someone other than the full U.S. Congress, where 523 members are subject to the wrath of their constituents, Congress passed the Budget Control Act of 2011. This legislation simultaneously increased the debt ceiling by $400 billion while requiring $917 billion in spending cuts over ten years, along with creating and tasking the Joint Select Committee on Deficit Reduction (i.e. the “Super Committee”). The Super Committee was supposed to identify another $1.5 trillion in cuts over the next ten years or else an automatic cut of $1.2 trillion in vital defense and non-defense spending would begin to take place in 2013.
Wow! So we raise the debt ceiling $400 billion (which may last a year if we are lucky) and then Congress is required to only find spending cuts of $91.7 billion annually for ten years. Then Congress creates a committee to maybe find another $120 – $150 billion in cuts. Well, that totals at best $142 billion annually for 10 years. That would not even cover the Interest on U.S. Debt and our Federal Budget Deficit would still be in excess of $1.16 trillion annually (i.e.: $10 trillion over the same ten years that the Congressional Budget Office (CBO) likes to report). There is just one more problem with all this “new math”; the $1.2 trillion of automatic cuts would not take place until “after 2012” when a new Congress is in place. That new Congress will not be bound by any decisions made by the current Congress, so everything is now effectively on hold and fair game the next time around. What an elegant way to do absolutely nothing!
What Congress and the CBO need to understand is that we do not have 10 years to solve this problem, so their standard time frame is irrelevant. The United States needs a balanced budget or better in the next couple years or else all the headlines we are reading about the “Euro,” “Greece” and “Italy” will be recycled using the ”U.S. Dollar” and the “United States.”
In unceremonious fashion, just days before Thanksgiving, the Super Committee announced to a roomful of gasps and surprise that they were unable to reach a bi-partisan agreement. Thanks for playing. Any other suggestions?
I suggest that the next bill Congress passes should be one that requires the Federal Government to report its’ financial statement according to GAAP, and for the Congressional Budget Office (CBO) to report the actual costs of new legislation in a similar fashion. If Congress is going to legislate via the SEC that U.S. public companies report their financials according to GAAP, then the U.S Government should, too, right? They are “the public.” Well, in an institution where their notion of cutting costs next year is just slowing the growth rate of the money you plan to spend, I can see why this would not serve them well.
So how does all of this tie into Commercial Real Estate Finance and the capital markets going forward? Unfortunately, I think this goes to confirm what most real estate professionals already intuitively know…that it will take several months beyond the election of a new president and new Congress before anything starts to really “get better.” Markets hate uncertainty, and until the uncertainty of the BIG, HUGE, GIGANTIC Elephant in the Room is addressed with real solutions that can be implemented, the real estate finance markets will continue to plod along at about the pace we have been marching for the past several years.