Fisher Investments Editorial Staff
Deficits, Politics

Is It Gold for the Americans?

By, 08/02/2012

It’s no surprise this year’s summer Olympics have already generated several surprises and many inspiring moments. But it’s a bit more surprising when politicians overcome the odds and reach a potentially attainable agreement. That seems a distinct possibility, though (should the Senate and House actually follow through), in light of Wednesday’s announced budget agreement.

Now, before awarding Senator Reid, Speaker Boehner and President Obama the gold, a few caveats are in order. What they really agreed to was … to agree to a budget. There’s no actual deal just yet—both houses of Congress still have to pass it (before September 30, when the fiscal year ends), and the President has to sign it. With most of Washington, DC, about to embark on its annual summer vacation, that’s less time than it might seem. On the other hand, it’s also ample time for the deal to unravel and for the debate to revert to square one. (After all, as our CEO, Ken Fisher, frequently reminds us, the origin of politics is Greek: poli, meaning many, and tics, meaning small, blood-sucking insects.)

It’s also not really a full budget agreement—it’s much more a Band-Aid to avert the possibility of a government shut-down before the year’s end and ensure government funding through next March. Unlike many arbitrary political deadlines, there’s some (political) rhyme and reason to March: By then, the elections will be over and the new Congress sworn in. Both sides have an interest in delaying until then, each being optimistic it’ll either retake or add to a Congressional majority and retake or retain the White House, depending on their party.

Both sides also have incentives to avert a government shutdown debate through the end of the year since it allows each to focus on longer-term questions like the so-called fiscal cliff and how the various candidates would handle long-term spending cuts, the “Bush” tax cuts and various other issues with longer time horizons than short-term government funding. Perhaps most mercifully of all, it averts the extraneous dramatics that inevitably accompany opening evening news shows with “Closed” signs on the Smithsonian—so in that sense, we all win.

Caveats aside, though, the agreement to agree to a budget possibly by September 30 and avoid what’s become a near-annual debate about a potential government shut-down speaks to a couple points we’ve discussed before. Namely, that politicians will (for better or worse) always be politicians—meaning when the rubber meets the road, they’ll almost always take the politically expedient route, rather than face voters’ and constituents’ ire, particularly in an election year.

Second, the deadlines involved in much politicking are near-universally adjustable—they’re more guidelines than an actual code. This particular maneuver illustrates that perfectly—politicians don’t much want to have the full debate now, so they’re simply going to put it off six-ish months. And when their six months are up, if they don’t feel like sorting it out then, it’s entirely possible they simply move the deadline again. Whether they acknowledge it or not, the same is largely true of fiscal cliff-related deadlines—and if politicians decide there’s some benefit to be had from pushing them back, don’t be surprised if that’s exactly what they do.

So while it’s not the solution pundits would no doubt have preferred, it’s still a step—and maybe it helps provide a touch of clarity for markets through at least yearend. But either way, it certainly doesn’t end the stumping, prognosticating and bloviating we’re likely to hear from politicians of all stripes, whether they’re up for election or not, through November. That’s about as reliable as Bob Costas’ nightly presentation of a heartwarming story of triumph during the Olympics broadcast. 

Click here to rate this article:



*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Subscribe

Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.