It was a painful wait through Tuesday night’s State of the Union speech to hear any talk about fixing the debt-and-deficit plague, and it’s likely to be a considerably longer wait for anything to get done.
President Obama spun his way through a variety of plans, processes and pontifications before even mentioning any of the dreaded “D” words.
Once he got there, the talk was vague and the actual plans were few: Get rid of those nasty tax cuts for rich people, tax oil companies, freeze spending (at these levels? That’s austerity?) and clean up the tax structure and the government bureaucracy mess.
Wednesday’s ho-hum market movement likely reflected sentiment that the president gave a nice speech, but it was sorely short of details on how any of these lofty goals actually come to fruition.
“We see little reason to adjust our forecasts on these modest and/or uncertain proposals,” Nomura Securities economist Zach Pandl wrote in a note to clients.
Still, it was at least a bit heartening to hear the president address the issue to any degree after 10 years of fiscal recklessness in Washington.
That’s kind of important when you’re talking about a $14 trillion national debt and a budget deficit that could reach $1.5 trillion. Our debt is well on its way to equaling our total gross national product, an ominous sign that has sent European countries into debt crises.
Investors don’t like lending you money if it doesn’t look like you can pay it back. They’re funny that way.
“Now it sounds like we’re back to a grown-up conversation about deficits again,” John Canally, economist at LPL Financial in Boston, told me this morning. “That helped. In terms of getting anything done this year I think it’s pretty low, but the odds are going up.”
The bad news, according to Canally, is that if the odds were 5 percent of getting a real debt/deficit reduction package going before the speech, they’re up to 10 percent now.
In large part, we can attribute the president getting fiscal religion to November’s election, in which voters punted to the Republicans in hope that the GOP can reverse some of the fiscal damage done over the past several years.
But they’ll need more to work with than getting rid of ever-controversial earmarks – a “rounding error” in terms of the total budget, Canally said—and some other gratuitous cost-cutting plans.
“The bottom line is it’s a $3.5 trillion budgets, so you can talk all you want about waste, fraud and abuse and cutting earmarks,” Canally said. “The real work is Medicare, Medicaid and Social Security. That’s where the pain begins.”
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