Harry Reid Is A Liar

Senator Harry Reid's (D-NV) plan that came out earlier this week was SUPPOSED to cut the deficit by $2.7 trillion over the next decade. Well results are back from the Congressional Budget Office. Turns out that Reid is lying, and his cuts are nowhere near what he claims. The CBO says that the plan cuts the deficit by $2.2 trillion over the 10 years, $500 billion short of what he actually said it would cut. If you take out the wars from Iraq and Afghanistan, the plan would cut $750 billion in domestic spending between 2012 and 2021. Excluding the interest paid on that, the budget deficit would ONLY be reduced by $375 billion. The CBO said, "Savings in discretionary spending would amount to nearly $1.8 trillion, mandatory spending would be reduced by $41 billion, and the savings in interest on the public debt because of the lower deficits would come to $375 billion." That's a far cry from the $4 trillion that S&P wants to see cut from the federal deficit. Here is a link from ZeroHedge that shows the actual results and cuts from Reid's plan. It is nowhere anywhere close to what is needed to avoid a credit downgrade from one of the three ratings agencies. S&P has been in constant contact with Congress, and even met last week with Freshmen Republicans to discuss what would happen if a credit downgrade did in fact actually happen. We have seen nothing from Washington close to what is actually needed to avoid any kind of mass chaos. In the past few days, we have seen the equity markets down more than 3%, and it looks as if we will see losses continue to accelerate if a deal does not get done. This could be as bad, or perhaps even worse than when Congress did not pass the TARP vote in 2008. When Congress vetoed the bill, the Dow fell 800 points that day. After that huge plunge, the market got what it wanted, and Congress quickly passed the bill, but the markets still continued to fall, before finally stabilizing. That appears to be what is happening now, unless Congress actually gets a deal done the first time that actually has some teeth to it. Congress has been elected to do a job, and they continue to be wishy-washy on actually getting something done. There are real consequences to what is happening in Washington, as many companies, including UPS Inc. UPS, Caterpillar CAT, Ford F, Dunkin' Brands DNKN and others have made public overtures to Washington to get something done. When asked about the CBO score this morning, Reid said that Congress regularly gives things to the CBO for scoring, and it is generally does not go with the first draft of a bill. Well Harry, you need another $3.5 trillion in REAL cuts to satisfy S&P. Get something done. We are all counting on it. ACTION ITEMS:

Bullish:
Traders who believe that Congress will ultimately get something done might want to consider the following trades:

• Go long and strong. There will most likely be a relief rally, as every time a mention of a deal has been leaked or made public, equities have rallied.

Bearish:
Traders who believe a deal is not going to happen before the August 2 deadline may consider alternate positions:

• Run and hide. If a deal is not done, where we go is anybody's guess. It could be a disaster of epic proportions.

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