5 Ugly Truths About Life After the Debt Deal

Forget the coddling -- we're still in trouble

     

Yesterday, the Senate approved legislation to raise the $14.3 trillion debt limit and immediately grant an additional $400 billion in government borrowing. Obama signed the bill just hours before the deadline where the Treasury said it would stop paying the bills.

There is no end to the commentary about the package, no shortage of debate about whether the deadline was truly the point where Uncle Sam’s change purse was empty and no end to the speculation over which party “won.”

What I’d like to focus on is life after this debt deal — specifically, five ugly truths about our legislators and our nation’s economy.

U.S. political dysfunction is only beginning

The so-called “super committee” that was part of the debt deal is a scary thing. The general idea is a 12-member debt reduction commission, and while the berths were unfilled as of this column deadline, I have no doubt of the kind of people who will get a seat: the fattest fat cats in Washington.

Say what you want about the inefficiencies of Congress, but at least there were a few brave souls willing to defy party leadership and vote their conscience — and even those I disagreed with, I admired for swimming against the tide. Now we will see Washington at its worst, with 12 partisan hacks who are more interested in power and electioneering than a true solution to America’s debt crisis.

Some shrug and say this is no different than military base realignment, where a committee crafts an ironclad plan for an up or down vote rather than allow cumbersome changes by legislators protecting disparate interests. That’s horse manure. You can understand why a U.S. representative who has a base in his district would have difficulty thinking objectively about the whole package, but America’s debt affects us all equally. We all have equal skin in this game — but somehow Congress has decided a dozen Washington insiders know best.

Forget about a seasonal boosting to stocks this fall

The market has plenty of cleverly named schemes relating to the seasonal strength of the market around the end and beginning of the year. There’s “sell in May and go away” until October, the Santa Claus rally and the January Effect. None of these phenomena are 100% certainties, but all carry at least superstitious weight.

Unfortunately, the recent debt legislation places a big lump of coal in investors’ stockings this winter by the aforementioned super committee. This group, charged with the daunting task of finding $1.5 trillion in debt reduction over the next decade, has perhaps the most Grinch-like schedule possible. The deadline for their proposal? Thanksgiving. The deadline for Congress to give an up or down vote on the package? Christmas. So much for happy headlines around the holidays.

The political rancor that is sure to arise in Washington will also certainly shroud Wall Street in uncertainty and doubt. And, as we saw the last few weeks, that’s not good for the market. In short, kiss the seasonal strength of the market goodbye thanks to the toxic politics that are sure to hang over the holidays.

 
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