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A few possible super committee outcomes

Joint Select Committee on Deficit Reduction listen to opening statements during the committee's first hearing on Capitol Hill September 8, 2011 in Washington, DC.

It's less than a week before the bipartisan debt committee -- the super committee -- must reach a deal to cut at least $1.2 trillion from the U.S. deficit. Both sides say they know the clock is ticking, but they're not getting closer to agreement. The deadlock is primarily over the usual beltway issues: who and how much gets taxed and which budgets get cut, and by how much. Republicans are battling against tax hikes; Democrats against entitlement cuts.

We spoke with Karen Shaw Petrou, an economist at Federal Financial Analytics. She says the markets are waiting to hear what the supercommittee comes up with, more so after the S&P downgraded U.S. debt in early August after the last budget impasse. Petrou says the supercommittee is likely to say one of three things at its Wednesday deadline:

(1) We've done what we set out to do and made the hard decisions

(2) We couldn't do it and it’s “the other party’s fault.”

(3) With…ahem… accounting gimmicks, we have a plan that looks like we did something.

Petrou says it's that last option -- "faking it" -- scares her the most. She says it'll put the U.S. economy on a path that's similar to the one Europe's currently facing: a political impasse preventing any comprehensive plan to restore economic health from being adopted. The political fighting raises the level of uncertainty past levels that investors can handle.

Still, she's not expecting the U.S. markets to hugely react to a super committee punt, even with Thanksgiving to digest it for another day. She says expectations of a real deal are just so low that most market watchers have already figured out the costs and priced them into their investments.

If the super committee does reach an agreement, the House and Senate will vote on it, without amendment, by December 23. If the committee can't reach agreement, then automatic cuts to defense and some nondefense spending will kick in in 2013. But both sides of the debate have said that they’re not sure they will go along with the automatic cuts meaning the U.S. could wind up back where it started last summer when the super committee was formed.


Also on today's show, recession meanz Heinz. The condiments company is being squeezed by rising commodities prices and falling demand in Europe and the U.S.

But Heinz has come up with some creative ways to play ketchup. It's focusing on shoppers who are strapped for cash, by selling some Heinz stuff in smaller, cheaper packages.  Plus, it's reintroducing to the U.S. market that least-fancy of foods: beans in a can. This all means a hit to the Marketplace Daily Pulse today.

About the author

David Brancaccio is the host of Marketplace Morning Report. Follow David on Twitter @DavidBrancaccio

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