Moody’s Zandi: Supercommittee Failure Could Hurt 2012 Economy

Monday, 21 Nov 2011 07:54 AM

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The economy will suffer in 2012 if a congressional supercommittee fails to come up with ways to trim the country's deficits, says Mark Zandi, chief economist for Moody's Analytics.

The committee, made up of six Democrats and six Republicans and born out of the debt ceiling impasse in August, is studying ways to cut deficits by $1.2 trillion.

But the supercommittee appears likely to admit failure on Monday, unable or unwilling to compromise on a mix of spending cuts and tax increases required to meet its assignment of saving taxpayers at least $1.2 trillion over the coming decade, the Associated Press reported.

Should they not agree by Wednesday, automatic cuts will kick in but the market will react negatively and added disenchantment with leadership and failure to address tough spending issues will dampen an economy that refuses to fully recover from the Great Recession.

"2012 is shaping up to be a very, very tough year," Zandi tells Fox News.

"And in large part it's because the supercommittee decided to punt, or at least at this point it appears that they've decided to punt."

Those automatic cuts will shave $600 billion from defense budgets and $600 billion from entitlement programs, but falling back on those cuts does not deal with benefits set to expire next year, such as unemployment aid and payroll tax breaks.

"Everybody's taxes are going to go up on January 1," which will hurt growth, Zandi says.

Now, some insiders say, supercommittee legislators are working on a way to announce their failure to recommend spending cuts.

"No decisions or agreement has been reached concerning any announcement or how this will end. But, yes, the likely outcome is no agreement will be reached," an unidentified Democratic aide tells CNN.

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