Will U.S. Debt Committee Reach a Deal?

On Sunday, the U.S. Debt Committee members blamed each other for the gridlock that undermined the committee’s attempts to cut the deficit by at least $1.2 trillion over the next ten years. The committee that was created last summer during the battle over the debt ceiling consists of six Republicans and six Democrats. The deadline for the panel to vote on a package is Wednesday at midnight. However, the impasse is deepening, and it is not clear what is going to happen.

Any plan, the committee would come up with, would have to be unveiled this Monday, November 21. It might be the announcement of failure. The U.S. government’s budget deficit and debt was at $15 trillion on Friday, November 18.

If the committee does not manage to reach an agreement, automatic spending cuts of $1.2 trillion over a decade will start in 2013. The cuts would be equally divided between domestic and defense programs and will go into effect two months after the presidential and congressional elections.

What effect all of this will have in financial markets this week? It is difficult to say. The market expectations that the committee will reach the deal are low anyway. If the committee does not reach a deal, it is not going to trigger an immediate government shutdown or a credit rating change, at least by Moody’s. The markets definitely will be disappointed with the government’s ability to compromise but in the end, the market never really had high expectations at any rate. Hopefully, it won’t implode.