The Failure of the Debt Reduction Committee: Credit Rating & Stock Markets (2011)

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The Joint Select Committee on Deficit Reduction, colloquially referred to as the Supercommittee, was a joint select committee of the United States Congress, created by the Budget Control Act of 2011 on August 2, 2011. This act was intended to prevent the sovereign default that could have resulted from the 2011 United States debt-ceiling crisis. The objective of the committee was to develop a deficit reduction plan over 10 years in addition to the $917 billion of cuts and initial debt limit increase of $900 billion in the Budget Control Act of 2011 that avoided a U.S. sovereign default. The committee recommendation was to have been subject to a simple vote by the full legislative bodies without amendment; this extraordinary provision was included to limit partisan gridlock. The goal outlined in the Budget Control Act of 2011 was to cut at least $1.5 trillion over the coming 10 years, (avoiding much larger "sequestration" across-the-board cuts which would be equal to the debt ceiling increase of $1.2 trillion incurred by Congress through a failure to produce a deficit reduction bill), therefore bypassing Congressional debate and resulting in a passed bill by December 23, 2011.[3] On November 21, the committee concluded its work, issuing a statement that began with the following: "After months of hard work and intense deliberations, we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline." The committee was formally terminated on January 31, 2012. Deficit reduction and the automatic cuts scheduled to take effect in January 2013 were viewed as likely to figure in the 2012 presidential election.[36][46] President Obama stated that he would veto any attempt by Congress to cancel the $1.2 trillion sequester.[47] These sequestrations figured prominently in the United States fiscal cliff discussions starting in 2012.[48] US financial markets largely anticipated the failure of the committee, leaving little room to fall following the announcement. The Dow was down 2.1% on the day of the announcement, and the NASDAQ and S&P 500 were each down 1.9%. Yield on ten year treasuries fell to 1.96% on increased demand for stable investments.[46][49][50][51] Credit rating agencies maintained their projections for US sovereign debt. Standard & Poor's affirmed their AA+ rating; the agency had downgraded the country's credit rating in August 2011, citing Congressional resistance to new revenue measures and fears that the tax cuts of 2001 and 2003 might not be allowed to expire.[36][52] Moody's affirmed a rating of AAA with a negative outlook.[36][53] Fitch Ratings affirmed its AAA rating but revised their outlook to negative, citing "declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path ... will be forthcoming."[54][55] Following the announcement that the committee had failed to reach agreement, a group of government watchdog organizations posted an open letter to President Obama and ranking members of Congress calling for the release of committee working documents. It argues that the proposals could serve the public interest by providing a basis for public debate going forward. The group comprised Taxpayers for Common Sense, the Project On Government Oversight, the Sunlight Foundation, the Center for Responsive Politics, Citizens Against Government Waste, The Heartland Institute, and Citizens for Responsibility and Ethics in Washington.[56][57] Except for the five public hearings, the committee proceedings comprising the majority of the negotiations and counter-offers will remain sealed for 20 years under current rules. https://en.wikipedia.org/wiki/United_States_Congress_Joint_Select_Committee_on_Deficit_Reduction