If there's one thing investment markets hate, it's uncertainty, which is why some advisors have circled late January and early February as a time to watch their portfolios very carefully. The worst case scenario is another federal government shutdown where the U.S. Congress will, at roughly the same time, refuse to raise the debt ceiling. If this becomes an annual event, sooner or later, the markets are going to take a hit.
But suddenly it looks like this messy future political fight might be avoided after all. As you read this, two legislators representing both sides of the aisle and both houses of Congress--Sen. Patty Murray (D-Wash.) and Rep. Paul Ryan (R-Wis.)--are negotiating one-on-one over a federal budget that would be created by human hands rather than by the automatic cuts known as the sequestration. Murray and Ryan have two things in their favor: 1) the support of party leaders as they make compromises, largely because both sides want to avoid the unfavorable publicity of another ugly budget stalemate; and 2) a deadline, since everybody in Congress wants to leave Washington and go home by December 13.
What are they negotiating over? The differences are surprisingly small. The Republicans are uncomfortable with the automatic sequester cuts to military spending, and want to give the Pentagon back the $19 billion that would vanish from its budget next year. The Democrats want to include $25 billion in benefits for 1.3 million long-term unemployed persons, which are set to expire at the end of this year.
The Republicans want to require federal workers to pay an additional 5.5% of their paychecks toward funding their retirement benefits, which would save taxpayers $130 billion over 10 years. The Obama Administration has proposed a 1.2% increase, saving $20 billion.
Both sides want to generate new revenues when the government auctions off parts of the broadcast spectrum to cell phone networks early next year. And there is talk about raising airline user fees to further raise revenues.
A compromise deal might authorize $1.015 trillion in discretionary spending next year, more than the $967 billion that would result from another year of the sequestration, but less than the $1.058 trillion that Democrats have been seeking. To pass any compromise measure, the Senate Democrats would need the support of only five Republicans. In the House, at least 30 Democrats would have to join with Republican supporters. That, of course, assumes that Tea Party Republicans sign off on a deal that raises domestic and defense spending, which is not a given--even if it is negotiated by one of their own.
Sources
http://www.politico.com/story/2013/12/budget-deal-100854.html
http://news.yahoo.com/emerging-budget-deal-small-victory-republicans-071800982.html
http://www.washingtonpost.com/business/economy/budget-deal-expected-this-week-amounts-to-a-cease-fire-as-sides-move-to-avert-a-standoff/2013/12/08/cc270d90-600b-11e3-8beb-3f9a9942850f_story.html?hpid=z1
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/12/09/wonkbook-the-grand-bargain-is-over/?tid=pm_business_pop
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