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My Federal Budget Crystal Ball for Next Year

4. A fiscal 2012 budget resolution will not be adopted. The House and Senate will likely pass a budget resolution next year. House Republicans will want to capitalize on their majority status to advance their agenda, and the largely symbolic budget resolution will be the politically safest way for them to appear to reduce spending without actually cutting anything. Because it’s one of the very few pieces of legislation that can’t be filibustered, the Senate will be able to pass its own budget resolution, if for no other reason than the leadership will be able to use the vote to show that it’s in control. But given the very strong possibility that compromises on budget issues will be impossible next year (see Prediction 1), it’s hard to see how the House and Senate will agree on the very substantial differences that will exist. As a result, no budget resolution conference report will be adopted.

5. Forget what we’re being told: Earmarks will thrive. Given the contortions and gyrations that tea party types and others are already doing to redefine earmarks, no one should be surprised when Congressional spending directives not only remain next year but also grow in numbers and dollar amounts. They may take different forms — for example, as letters or phone calls to departments and agencies rather than language in bills or reports — but they will be earmarks nevertheless.

6. Government contractors will be the 2011 version of bond market vigilantes. With their payments and profits on the line, companies that do business with federal departments and agencies will be the most vocal opponents of take-no-prisoner tactics like government shutdowns and rapid, large cuts in federal spending. They’ll also have support from their institutional and other investors who won’t want profits, cash flow, dividends and stock prices to suffer. While a shutdown will be threatened and is likely, it will be difficult to keep one going for more than a few days once the contractor community starts protesting.

7. Don’t be surprised if financial markets are surprised by Predictions 1 through 6. There’s no indication that Wall Street has a clue about what’s ahead as far as the federal budget is concerned. Because of this, equity and fixed-income prices are more likely to swing quickly in response to Washington next year than at any other time over the past decade.

Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”

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