Super committee

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Congress Finds One Thing It Can Agree On - Spending Your Money

By , Associate Editor, Money Morning • @DavidGZeiler -

Time and time again, a divided Congress has failed to come up with desperately needed solutions to America's debt and budget deficit problems.

But when a major spending bill came along last week, members from all across the political spectrum suddenly found themselves in agreement.

Last week the Senate approved a $662 billion defense spending bill for 2012 by a vote of 93-7. A similar bill passed the House in July by a vote of 336-87.

Still, another piece of financial legislation in the Senate last week that would help the average working American, the extension of the payroll tax cut holiday, failed - a victim of the same partisan posturing that led to the debt ceiling crisis this past summer.

In truth, there was some debate in the Senate on defense spending bill. However, the senators were arguing over a provision that could take away a citizen's right to trial should they be determined to be a member of al-Qaeda or its affiliates, or if they're suspected of involvement in a terrorist plot.

The vast $662 billion price tag drew little opposition, however.

The continued inaction on everything but spending proves once again why America hates Congress. According to the latest poll averages at Real Clear Politics, 81.2% of the American people disapprove of the job Congress is doing, a measure that hasn't gone below 60% since the middle of 2009.

"Having lost almost all faith in the legislative branch, people want Congress to prove us wrong," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "More gridlock is potentially catastrophic for our country and our way of life."

A Record of Incompetence

Despite a $15 trillion debt and yawning annual budget deficit, legislators in Washington have turned every attempt to address America's fiscal problems into a circus of finger-pointing and name-calling.



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Why America Hates Congress

By , Associate Editor, Money Morning • @DavidGZeiler -

Everybody knows that screwing up a critical assignment at work will almost surely get you fired.

That is, unless you work as a member of the U.S. Congress.

After more than two months of bickering, the six Republicans and six Democrats on the "super committee" tasked with finding at least $1.2 trillion debt reduction savings over the next decade have thrown in the towel.

They have no debt reduction plan.

Analysts agree that despite the urgency of addressing America's fiscal issues, both sides are more interested in scoring political points than solving problems.

Meanwhile, the federal debt continues to grow. It eclipsed $15 trillion last week.

With representatives pocketing salaries of $174,000 a year despite their failures, it's no wonder U.S. citizens are down on Congress. A recent New York Times/CBS poll showed Congressional approval sinking to just 9%.

Even some members of Congress admit it.

"The politicians care more about their parties and getting reelected than they do the very real problem," Sen. Tom Coburn, R-OK, said Sunday on C-SPAN's "Newsmakers" program. "[The super committee] was Washington's answer to kicking the can down the road."

According to the law passed as part of the debt ceiling deal over the summer, failure of the super committee to come up with a debt reduction plan is supposed to result in $1.2 trillion in automatic cuts, known as "sequestration."

Half of those cuts, $600 billion, are to come from defense spending, with the other half coming from such areas as education, the environment, transportation, housing assistance and veterans' healthcare.

But just because that's what the law says doesn't mean it will happen. Congress, don't forget, can undo any laws it creates. Ideological opposites Sen. John McCain, R-AZ, and Rep. Maxine Waters, D-CA, among others, are already working on this.

It's just more evidence of a disingenuous Congress.

Pointing Fingers

Instead of developing a deficit reduction solution, lawmakers have tried to convince the American people that the super committee's failure is the other party's fault.

Democrats had called for a "balanced" approach of some higher taxes, mostly on the wealthy, and spending cuts. Republicans eschewed any increase in taxes, preferring instead to reach debt reduction goals entirely through spending cuts.

"The wealthiest of Americans, those who earn more than $1 million every year, have to share, too. And that line in the sand, we haven't seen any Republicans willing to cross yet," super committee co-chair Sen. Patty Murray, D-WA, said on CNN's"State of the Union."

"I don't understand the economics that says that if we raise taxes on my employer, or my boss, somehow they're going to go out and hire my unemployed brother-in-law," Rep. Jeb Hensarling, R-TX, another committee co-chair, countered on "Fox News Sunday."

Why so much rhetoric and no action?

The main reason is that the automatic cuts don't kick in until January 2013 - after the key 2012 elections. Both sides hope to pin the blame on the other side to secure election victories next November that will empower them to solve the debt problem their way.



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Defense Stocks Under Fire From Super Committee Budget Cuts

By , Associate Editor, Money Morning • @DavidGZeiler -

Defense stocks have become collateral damage in the battle raging in Congress over how to reduce the deficit by $1.2 trillion over the next decade.

Any mix of cuts and tax increases will certainly include significant reductions in defense spending. And if the Congressional "super committee" fails to come up with a plan, an automatic "sequestration" will kick in, which calls for half of the money -- $600 billion - to come out of defense.

That will come on top of $350 billion in defense spending cuts (also stretched out over the next decade) that were part of this past summer's agreement to raise the debt ceiling.

No wonder the major defense contractors are concerned.

"The defense market is shrouded by the uncertainty," Jay Johnson, Chairman and CEO of General Dynamics Corporation (NYSE: GD) told Politico. "We continue to have no special insight as [to] what the super committee will determine ... or what will happen to defense budgets beyond 2012."

While the deadline for the 12-member bipartisan super committee to vote on a plan is Wednesday, it must submit that plan to the Congressional Budget Office today (Monday).

Talk on Capitol Hill last week was anything but optimistic.

Super committee member Sen. Max Baucus, D-MT, was among those expressing dismay at the lack of progress.

"We're at a time in American history where everybody's afraid - afraid of losing their job - to move toward the center. A deadline is insufficient," Baucus told The Washington Post. "You've got to have people who are willing to move."

The urgency of doing something about the federal deficit was underscored last week when it officially passed the $15 trillion mark.

With defense spending already on the decline as a result of the withdrawal of U.S. military forces from Iraq by year's end and the continuing drawdown of forces from Afghanistan, the defense industry has already started to feel the pain.

Lockheed Martin Corp. (NYSE: LMT) laid off 6,500 workers over the summer; its stock is down more than 5% in the last six months. Northrop Grumman Corp. (NYSE: NOC) let 800 people go just last month, and its stock has fallen nearly 12% in the past six months.

Profits at Risk

An adjustment was coming even without a debt problem. While the United States was embroiled in two major overseas conflicts, the defense industry got fat - profits grew from $6.7 billion in 2001 to $24.8 billion in 2010.

Government spending on defense has nowhere to go but down -- the only question is by how much.



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