For several weeks, a rotation has been underway in the U.S. market, with money moving away from some...
Will the Supercommittee Succeed?
11/16/2011 11:30 am EST
Andrew Busch, global currency strategist for BMO Capital Markets, gives his insider's view in this exclusive interview with MoneyShow.com on whether he thinks the Congressional debt committee can really reach an agreement and avoid massive across-the-board spending cuts.
Andy, so this supercommittee, what are your thoughts about the actual effectiveness of this thing?
Well, I mean the structure is pretty weird-obviously, six Democrats, six Republicans-weird in the sense that it doesn't necessarily lend itself to an agreement.
I mean, the sides are pretty drawn in. The Democrats don't want to give on Medicare and cutting entitlements unless they know the Republicans will give in on revenues or tax increases. They're at a stalemate right now-they need to get the adults in the room.
Again, this is going to sound just like it was when they were negotiating the debt-ceiling agreement to get that back in August. They're really going to need to see President Obama involved, John Boehner involved, and Harry Reid involved pushing this forward.
There is some onus on them. I mean, the structure of the budget control agreement, which going back to the debt-ceiling talks.this is what created the supercommittee to come up with cuts, otherwise there is what we call a sequestration of funds, meaning they're going to have to cut across the board. Here is where the rubber meets the road on that.
The big thing is that when they cut, 50% of those cuts have to be for defense, and as most people know, Republicans don't want to cut defense spending. I would say that's pretty well known. John McCain obviously sticks out as someone who has spoken out pretty forcefully against that.
There is some onus on these guys to move forward, there are some things out there that they'll want to change. It's a question of if they want to go big or go home. The discussion of going big is $4 trillion.I'm not sure if they're going to get there, they'd have to really come up with some significant changes.
Very shortly, we'll know clearly what they're going to do overall. They have to present that on November 23 to the rest of Congress.
Are these just suggestions? At some point, Congress is going to have to do something with them, right? They can't force Congress to do this.
No, that's right, but there are certain provisions where they.for instance, in the Senate, this is a no-amendment deal, it's an up or down vote. That helps a lot. As most people know, once you get into the Senate things slow down a little bit, everybody is allowed to add amendments, unlike the House.
But you're right, I meant the question is whether or not they want to make this truly an event where it's going to change the structure of a lot of things in the country and be very helpful-corporate tax reform is one of those things-or whether or not they're going to go small ball and just try to cut a few things here and there and then pump this beyond the 2012 election.
That's right, because it seems like the truth is somewhere in the middle. We're probably not going to be able to do it just by cutting spending, we're probably not going to be able to do it just by raising taxes. It's going to have to be, it seems, a combination of the two.
Yeah, I mean, that's my hope. I really want to see a cut in the corporate tax rate that loses a lot of the exemptions that corporations have but lowers the rate.
The reason why I want that is because that helps the small firms, the firms five years and younger, those guys are the job creators, the brand new firms. From 1996 to 2005, these firms created most of the jobs, and when I say most I want to say 90%, like over 3 million jobs. They're the guys that create jobs, it's not GE (GE), it's not IBM (IBM).
If we want new jobs in this country, we have to help these guys, and these guys don't have the legions of tax attorneys and accountants out there to take advantage of all the exemptions that corporations have, big companies. So when you actually cut the overall tax rate, the effective tax rate, it's really helpful for them.
It's not perfect, it doesn't totally work one to one at all-no, it doesn't work that way. Capitalism doesn't work that way, but if you grease the skids it will help dramatically.
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