With the debt ceiling "compromise" deal still in flux, although at least according to the FX market expected to be approved shortly, despite the protestations of liberal democrats (one wonders if Obama will accuse said group of hostage tactics much as he accused conservative republicans of the same last week), below is what the current shape of the proposed deal looks like courtesy of the WSJ's Washington Wire blog.
Here's the outline of the debt ceiling deal as of now, according to officials on both sides:
$900 billion in the first stage of deficit reduction.
$1.5 trillion in second stage of deficit reduction to be defined by a bipartisan special committee of lawmakers appointed by leaders of the House and Senate.
If the special committee fails to deliver a deficit-cutting package that would trigger $1.2 trillion in cuts, half would be Defense cuts and the other half would be non-Defense cuts, exempting low-income programs Social Security and Medicaid, and only impacting providers in Medicare.
The debt ceiling increase would be done in three phases: $400 billion initially; another $500 billion later this year would be subject to a vote of disapproval; a third increase of $1.5 to get the rest through 2012 and would also be subject to vote of disapproval.
There is also a provision to have Congress vote on balanced budget amendment.
The special committee would not necessarily tackle tax reform. But Mr. Obama is threatening to veto any extension of the Bush-era tax cuts for those making $250,000 a year or more unless Congress acts on an overhaul of the tax code.
One can easily see why more radical elements on either side are not be too happy with the proposed bill layout. To be sure the futures market will immediately price in a deal with a triple digit move in the DJIA expected. The only question is at what point will the fade commence, since it is now obvious that absent more monetary stimulus, GDP will go negative first slowly, then very fast as backended cuts start materializing.
0 comments