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Wall Street Is Leaning Hard on the Supercommittee to Make Cuts

The Congressional supercommittee, tasked with finding at least $1.2 trillion in ten-year deficit reduction, is a natural target for the slashing austerity class.

George Zornick

October 25, 2011

Last week in The Nation, Ari Berman penned an excellent examination of the “austerity class”—the network of wealthy donors, pro-corporate front groups, and right-leaning pundits that have successfully convinced Washington that debt and deficits are a more pressing concern than stimulative action on jobs. As Berman noted, the basic goal of the Wall Street–driven movement is to see government funds directed to the private sector.

The Congressional supercommittee, tasked with finding at least $1.2 trillion in ten-year deficit reduction by November 23, is a natural target for the slashing austerity class. But there’s been a lot of talk in recent weeks that the supercommittee might not actually do much. Many legislators seem to think the committee will deadlock, thus triggering automatic cuts in both defense and domestic spending—but lawmakers could pretty easily undo the cuts resulting from that trigger. There are other ways for the committee to escape the burden of deep cuts painful to both sides: some senior Republicans, for example, are reportedly pressuring their colleagues to just count the money saved from already planned drawdowns in Iraq and Afghanistan, which would almost get to the supercommittee’s $1.2 trillion target.

Enter Wall Street. In a Hill story this morning titled “Fears of a US credit downgrade are growing on Wall Street,” we hear a lot of ominous talk from bankers that the credit rating agencies will downgrade the federal government’s credit, again, if the deep cuts aren’t achieved:

Fitch Ratings, one of the three major credit raters, said in August that failure by the supercommittee to agree to a $1.2 trillion deficit-reduction package “would likely result in negative rating action.” […]

In its outlook for this week, Bank of America Merrill Lynch said it “expects” a downgrade by one of the three credit agencies “when the supercommittee crashes.”

It’s important to understand that the credit rating agencies get all of their fees from Wall Street, and have historically been more than willing to do the bidding of powerful financial firms—whether it was blessing toxic mortgage-backed securities or the issuing the unjustifiable downgrade of the federal government’s credit in August. (I wrote about that here, here, here and here). So this is just a tool which Wall Street is using to increase pressure on Washington to make cuts.

The story has more threats from Wall Street beyond action by the rating agencies, namely in the form of completely ridiculous rhetoric:

In its weekly analysis Friday, Deutsche Bank said the supercommittee report is “perhaps” the most important issue facing the markets. “The fiscal calendar is likely to be a source of considerable volatility,” the report warned.[…]

Michael Cembalest, chief investment officer for JP Morgan Chase, wrote that failure by the group could even herald the end of the dollar as a reserve currency.

So Wall Street really wants these cuts, without any shenanigans. The question now is whether Washington will listen—and of course, it usually does.

George ZornickTwitterGeorge Zornick is The Nation's former Washington editor.


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