This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Super Committee Setting Up for Epic Fail

Stocks in this article: MS

NEW YORK ( TheStreet -- With every passing day, it seems more likely that Americans won't be giving thanks at Thanksgiving for a job well done by the Super Committee.

While some believe the cost of failure is too high, expectations that the bipartisan group will be unsuccessful are growing. The group of six Republicans and six Democrats were tasked with finding over a trillion dollars in spending cuts -- something Congress and the White House were unable to achieve.

If the panel isn't successful in meeting the deadline, then the nuclear option goes into effect, which is $1.2 trillion in automatic cuts that cut across all lines. The across-the-board cuts would tap into national security and domestic spending, but entitlement programs would be spared.

Tom Gallagher, a public policy consultant to Morgan Stanley (MS) and a senior fiscal and public policy analyst with Scowcroft Group, has four scenarios that he believes could play out.

The first one is gridlock, and Gallagher believes this is the most likely outcome after three months of meetings. Without a majority, automatic cuts will come into play, and the fear of a downgrade of the U.S. credit rating rises.

"In this case, there is no downgrade risk," Gallagher said. "However if you have groups fighting against the cuts, the downgrade risk rises."

The next scenario and one that many feel will happen is that the group will ask for an extension.

"They could ask for another six months, although this is just more kicking the can down the road," Gallagher said.

Several traders at the New York Stock Exchange felt this is the most likely outcome. A delay in decision making allows the group to avoid being labeled as failures and makes it look like they are actually working towards a solution.

The third scenario that Gallagher thinks could happen is that the committee comes up with a smaller deal. One that has a real savings level in the range of $400 to $800 million.

In this case, he thinks the group extends current tax cuts and doesn't make big changes. In other words, just enough cuts to get everyone off the committee's back. Good enough for government work, right?

The last outcome that Gallagher suggests and one that has the lowest odds of occurring is genuine long-term deficit reduction.

"This is one in which real pain is inflicted," said Gallagher, i.e. a deal where cuts are made in normally untouchable areas like the military and Social Security. Remember the old adage: The best compromises are those in which both parties are unhappy with the outcome.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs