U.S. defense spending is front and center in the grand Washington deal to avert global economic disaster.
The first cut is not so deep. Over 10 years, the deal recommends a $350 billion reduction to security agencies.
But here’s how the bill now before Congress is wielding the Pentagon brass like a hammer: Unless congressional Republicans sign off on the recommendations of a new bipartisan committee that presumably would seek some tax increases, the bill would automatically add $500 billion to the security establishment’s deficit-reduction bill.
There’s a strict timeline involved. The committee needs to report on its recommendations before Thanksgiving, with Congress signing off on the deal by Dec. 23.
The early reaction from investors is something of a shrug, since some of the deficit-reduction proposals in play run all the way up to $1 trillion.
“However, that does not mean there is no reason for concern,” says Joseph Nadol of J.P. Morgan in a note to investors. “We expect news about specific program hits for FY12 and FY13 starting in the Sept/Oct timeframe, and this is when we would be most concerned about the impact of incremental budget news on the stocks.”