by Peter G. de Krassel
Sequestration became a dirty word and the federal spending cutbacks that went into effect March 1, 2013, were the fault of Democrats, according to Republicans – who, of course, the Democrats blame as the real culprits as does the American public, according to the polls.
Speaking of polls, with John Boehner’s House speakership on the line and Senate Republican leader Mitch McConnell of Kentucky, who faces re-election in 2014 in a state with a strong Tea Party faction, why is anyone surprised?
Investors on March 1st shrugged off the onset of the cuts, sending the Dow Jones Industrial Average up 35.17 points to 14,089.66, its third-highest close of all time. The blue-chip index rose 0.6 percent for the week, its second consecutive weekly advance. The Dow went on to reach new heights a week later when the Dow Jones industrial average enjoyed its second highest close evrr and was just 37 points away from a new record ? more than double its level during the dark days of March 2009.
Meanwhile, back in China, stocks plunged on Beijing’s plan to impose a uniform 20 percent capital gains tax on home sales profits. As if that wasn’t bad enough, the government also announced that it would make it more difficult for people to buy a second home.
The ripple-impact on the entire Chinese economy was instant. The fear of reducing demand for steel, cement, household appliances and many other mainstays of China’s manufacturing-dependent economy.
The irony is that to combat the Great Recession, the Fed bought trillions of dollars of mortgage bonds and U.S. Treasuries to juice the housing market and the economy in general and now has to scale back the bond-buying spree and get ready to unwind some of the Fed’s massive portfolio which tops $3 trillion ? about the same amount China has of U.S. Treasuries.
Should the portfolio of either the Fed or China grow to $4 trillion or more, We the Apathetic Maids will be staring at a much uglier world.
“Of course, the immediate future is uncertain,” Warren Buffet wrote in his annual letter to shareholders released March 1st. “America has faced the unknown since 1776… . American business will do fine over time.”
Congressional leaders were never close to an agreement to block or replace the $85 billion in cuts and Wall Street knew for weeks, but investors preferred the sequester to tax increases and had already factored in the financial costs.
The fact is, the cuts are a good beginning of what America needs to do to balance its budget. Unfortunately, many of the cuts, such as education, are wrong and unnecessary, but had to be part of the “across the board” cuts for everyone – except for the career politicians, of course.
A cut of a mere $85 billion from the 2013 budget of $3.6 trillion ? a reduction of 2.3 percent, amounts to two cents on the dollar. Much bigger cuts must be made to balance the budget.
The sequestration will cause federal spending over 10 years to drop from $46 trillion all the way down to $44.8 trillion! Is this any way to cut the deficit and balance a budget? Of course not. Especially, when it is the poor that are disproportionately hard hit.
The way for career politicians to cut the deficit is to cut overspending, not pass an across-the-board meat-cleaver law that tries to pressure Congress to act that costs 700,000 jobs in 2013 and will shave at least a half percentage point from economic growth.
The showdown on debt row has left the discretionary programs to bear the brunt of deficit reduction measures. Those domestic and military programs are so named because Congress has discretion to set spending levels annually in appropriations bills; entitlement benefits, in contrast, grow automatically unless changed by law.
Lobbyists went into high gear to blunt the pain on their special-interest clients, even before the sequestration went into effect and turned their attention to the next budget deadline – the need to pass a bill extending routine government funding after a stop-gap bill expires March 27, 2013. Without an extension, a partial government shutdown will occur.