Are you prepared? Something significant could unfold in the coming days. In fact, this Friday, without Congressional intervention, we may find ourselves faced with a rare occurrence…
Apocalypse!
It’s not a joke… President Obama has even mentioned it.
“Emergency responders like the ones who are here today – their ability to help communities respond to and recover from disasters will decline. Border Patrol agents will see their hours cut. FBI agents will be furloughed. Federal prosecutors will need to close cases and release criminals. Air traffic controllers and airport security will experience reductions, resulting in longer airport delays. Thousands of teachers and educators will lose their jobs. Tens of thousands of parents will scramble to find childcare. Hundreds of thousands will lose access to essential medical care, including flu vaccinations and cancer screenings.”
To be honest, the President’s warnings don’t seem particularly alarming. Fewer ineffective flu shots, a reduction in the number of FBI agents, and federal prosecutors no longer making mountains out of molehills all seem like positive changes. And think of the fortunate children who may escape government-mandated childcare.
Nevertheless, it’s clear that Obama’s visions of doom are little more than a theatrical production… a continuous narrative filled with dramatic twists. You’ve witnessed the many chapters, including the debt ceiling crisis, fiscal cliff, and now budget sequestration. It’s all an elaborate performance to give the illusion that the federal government is tackling its spending issues.
Insights on Budget Sequestration
The reality is the federal government is addicted to debt. They seem unable to stop; they merely pretend to be tightening their belts. But, ultimately, they will continue to spend until a significant default happens.
In the meantime, government—alongside government debt—will likely continue to expand, comparable to bunions on an elderly person’s tired feet. Unfortunately, the latest budget sequestration stalemate won’t actually lead to a meaningful reduction in 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 of the often-cited $85 billion in Budget Authority because it takes time to realize the outlay reductions. The cut is gradual, far more so than the rapid increase in spending we’ve seen over recent years.”
In terms of the broader budget, the deficit, and national debt…
Budget sequestration of $42 billion represents just 1.1 percent of the federal government’s $3.8 trillion budget for 2013. Within that budget, $900 billion is earmarked for deficit spending. Hence, a $42 billion cut merely reduces the 2013 deficit by 4.7 percent.
Put simply, even with the sequestration in place, the government will still add $858 billion to the debt, raising the national debt to $17 trillion. Of this, $42 billion constitutes merely 0.24 percent of the national debt. It’s essential to understand that this $42 billion doesn’t actually cut the debt; it simply slows its growth by 4.7 percent. Consequently, even with budget sequestration, the debt will still increase by 95.3 percent ($858 billion) of the amount it would have without any cuts ($900 billion).
Clearly, the federal government is not genuinely committed to addressing spending and deficits.
Apocalyptic Revelations and Other Fictions of Government
The bottom line is that nothing will genuinely change until it absolutely has to. We hold little faith in the government’s ability to operate on a balanced budget, as they have consistently proven incapable of doing so.
Furthermore, Congress’s recent attempts to tackle the government debt crisis, through measures like the fiscal cliff and budget sequestration, have been outright dismissive to the millions of hardworking Americans who manage their finances responsibly. In reality, Congress would need to cut annual spending by 24 percent to achieve a balanced budget, yet the budget sequestration only imposes a cut of 1.1 percent.
Ultimately, it’s evident that the federal government does not desire to reduce deficit spending. They feign interest in doing so, but their true intention is to borrow more and spend more.
From a practical standpoint, the ongoing budget sequestration drama in Washington may disrupt stock market prices. However, just as the deadline approaches, it’s likely that a last-minute solution will emerge to defer the repercussions. If not this week, Congress will surely work something out in the coming weeks before the public feels the impact. Regardless, the apocalyptic revelations voiced by Obama won’t be as dire as they are portrayed.
We predict that any market downturn would be temporary and could present a buying opportunity, if you are prepared to take the risk. Of course, logic and clear thinking seem to be absent from the stock market at present. The Fed’s influx of liquidity continues to drive prices upward.
Enjoy the upswing while it lasts, but remember, it’s not founded on solid ground… and it won’t end well.
Sincerely,
MN Gordon
for Economic Prism
Return from Apocalyptic Revelations and Other Fictions of Government to Economic Prism
