Are you ready? Something remarkable could happen within the next few days. In fact, this Friday, if Congress doesn’t take action, we’ll all have the extraordinary opportunity to experience something that rarely occurs…
No kidding… President Obama even says so…
“Emergency responders like the ones who are here today – their ability to help communities respond to and recover from disasters will be degraded. Border Patrol agents will see their hours reduced. FBI agents will be furloughed. Federal prosecutors will have to close cases and let criminals go. Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to scramble to find childcare for their kids. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.”
Quite frankly, the Presidents warnings don’t sound all that dire. No more ineffective flu shots. Fewer FBI agents and federal prosecutors running around, wasting everyone’s time and money making a federal case out of everything. These sound like positive developments to us. Plus, think of all the fortunate children who’ll no longer be subjected to government childcare.
Regardless, by now you know that Obama’s visions of the apocalypse are all one giant soap opera…a never ending series of dramatic fiction. You’ve witnessed the various episodes, like the debt ceiling, fiscal cliff, and, now, budget sequestration. It’s all a great show to make it appear that the federal government’s addressing their spending problem.
Facts on Budget Sequestration
The truth is the federal government is addicted to debt. They can’t stop. They like to pretend they’re reigning things in. But they really aren’t. They’ll keep on spending until the great default occurs.
In the meantime, government – and government debt – will continue to grow larger and larger like bunions upon an old ladies weary feet. Unfortunately, the latest budget sequestration impasse won’t do a darned thing to meaningfully reduce government spending…
“Note that the reduction for 2013 […] amounts to only 0.26 percent of GDP or $42 billion according to CBO,” explains Stanford University’s John Taylor. “This is less than half the frequently mentioned $85 billion in Budget Authority because it takes time to bring about the outlay reductions. The reduction is also quite gradual, much more gradual than the sudden rise in spending in the past few years.”
In terms of the overall budget, the budget deficit, and the national debt…
Budget sequestration of $42 billion represents 1.1 percent of the federal government’s $3.8 trillion 2013 budget. Of that, $900 billion is deficit spending. Hence, a $42 billion reduction in spending only reduces the 2013 deficit by 4.7 percent.
In other words, even with the sequestration, the government will add $858 billion to the debt…pushing the national debt to $17 trillion. Of the $17 trillion national debt, $42 billion represents 0.24 percent. Remember, this $42 billion does not actually reduce the debt; it merely reduces the growth in debt by 4.7 percent. Thus, even with the budget sequestration, the debt will increase by 95.3 percent ($858 billion) of what it would have ($900 billion) without it.
Obviously, the federal government is not serious about spending and deficits.
Apocalyptic Revelations and Other Fictions of Government
The point is, nothing will change until it must. We have no faith in the government and their ability to operate within a balanced budget. They’ve proven they’re incapable of doing so.
Moreover, Congress’s recent efforts to address the government debt problem, through the fiscal cliff and budget sequestration, have been a complete and total insult to the millions of Americans that work hard, pay their own way, and live within their means. Congress must reduce annual spending by 24 percent to really balance the budget. Yet all the budget sequestration imposes is a reduction in spending of 1.1 percent.
When it comes down to it, the federal government doesn’t want to reduce deficit spending. They pretend they want to. But they really don’t. They want to borrow more money…and they want to spend it.
From a practical standpoint, the budget sequestration charade taking place this week in Washington could wreak havoc on stock market prices on Wall Street. But, come the end of the week, some 11th hour resolution to kick the can down the road will come about. If not this week, Congress will work something out over the next several weeks before the effects are felt by the public. Irrespective, Obama’s apocalyptic revelations won’t be nearly as exaggerated as advertised.
We anticipate that any selloff would be short term and will offer a buying opportunity, if you have the stomach for it. Of course, common sense and clear thinking has disappeared from the stock market for the moment. The Fed’s funny money continues to propel things onward and upward.
Enjoy it while it lasts. Just remember that it’s not based on anything concrete…it won’t end well.
for Economic Prism