Will the super committee reach a deal?

U.S. House Minority Whip Rep. Steny Hoyer speaks as other congressional members listen during a news conference November 16, 2011 on Capitol Hill in Washington, DC.

JEREMY HOBSON: Now let's get to the Congressional super committee, which now has less than a week to agree on $1.2 trillion in deficit reduction over the next 10 years. And so far, no deal.

Diane Swonk is chief economist with Mesirow Financial. She's with us live from Chicago as she is every Thursday, good morning.

DIANE SWONK: Good morning.

HOBSON: So Diane, you're in touch with the power players in Washington all the time -- what's going to happen? Are they going to reach a deal?

SWONK: Well, right now it doesn't look like it. I still have hope, but not a lot of faith in the fact that they will, but again I have hope. Usually Congress takes it down to the deadline, and one deadline is actually Monday so the C.B.O. can score it up before Thanksgiving.

HOBSON: That's the Congressional Budget Office. And Diane, the last time we had a big deadline like this in Washington, it was the debt ceiling and of course that had immediate consequences of inaction. This time the automatic cuts wouldn't go into effect until 2013, so does that mean we don't really need to freak out about this deadline?

SWONK: Absolutely not. In fact, the market repercussions would be fairly substantial, especially against the backdrop of the debt crisis in Europe. We need to look like we're acting responsibly and moving forward, and we can't look afford to look like the keystone cops in congress.

HOBSON: Well you mentioned Europe, I want to ask you one thing on that front: this big warning that came out from the ratings agency Fitch, which says that U.S. banks could face big problems because of the debt crisis in Europe. Is that for real, or I thought these banks in the U.S. had reduced their exposure?

SWONK: Well, we actually have seen the banks in the U.S. voluntarily reduce their exposure on the sovereign debt crisis, and that was no new news that Fitch announced. They are exposed, but they are much more cushioned than they once were. That said, the Fed has been very vocal about the fact that are banks are in better banks, but let's face it: we're not an island.

And if a crisis were to occur in Europe, it still could come back to bite us here in the United States and that's what the Fed was really concerned about. Although our banks are better cushioned than 2008, it doesn't mean we're immune, particularly in money market funds, where they're so exposed to short-term European bank debt.

HOBSON: Diane Swonk, Chief Economist with Mesirow Financial, thanks as always.

SWONK: Thank you.

About the author

Diane Swonk is chief economist with Mesirow Financial, based in Chicago.

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