Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
4.INVESTORS SEDUCED by CNBC and the STOCK CHARTS COMPLETELY MISS the BIG PICTURE! - 10th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
Why Ray Dalio is WRONG About China - Principles for Dealing with the Changing World Order - 24th May 22
Globalists Convene to Plan Central Bank Digital Currencies - 24th May 22
After Recent Highs, What’s Next for the Gold Junior Miners? - 24th May 22
Why APPLE Could CRASH the Stock Market! - 21st May 22
Why Is Crude Oil Ignoring US Inventories? - 21st May 22
Here is Why I’m Still Bullish on Gold Mining Stocks - 21st May 22
THE INFLATION MEGA-TREND QE4EVER! - 20th May 22
US Real Estate Investors – Is There An End In Sight? - 20th May 22
How Technology Affected the Gaming Industry - 20th May 22
How To Set And Achieve Reasonable Goals For Your Company - 20th May 22
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Sequester and Negative Economics?

Politics / Economic Austerity Mar 03, 2013 - 11:09 AM GMT

By: Ian_R_Campbell

Politics

I am sending this Newsletter today, Saturday, a departure from my normal practice, because of what I see as the importance of the inability of Washington politicians to - at least for the time being - come together on the so-called 'sequester budget cuts' that barring subsequent agreement have now taken effect.

As anyone in the world who can hear or read likely knows, last night U.S. President Obama signed an order putting the 'sequester budget cuts' in place. This means that between now and September 30 - the end of the U.S. Federal Government fiscal year, that absent subsequent negotiations and agreement that changes things - $85 billion in spending cuts will be made from the current 2013 U.S. federal spending budget (before these cuts, $3.8 trillion).


In the end, it seems to have come down to a complete obstinance on the part of the Republican party to bend on tax increases, with John Boehner, the Republican Speaker of the House of Representatives saying yesterday: "The discussion about revenue (read 'tax increases') is over. It's about taking on the spending problem". This strikes me as a statement that in itself can do little but influence increased (if such a thing is possible) polarization in Washington. Query: how can the House Speaker retract from such a 'set in concrete' statement going forward?

In my Newsletter yesterday, I said:

"If what happens is not a repeat of what happened in July/August 2011 at the time the most recent 'debt ceiling agreement' was reached:

I will be on 'the surprised' side of things; and,

I can't see how non-agreement can lead to anything but a weaker U.S. economy and a weaker U.S. Main Street."

I also said yesterday "I will find it very confusing if the financial markets do not react negatively if an agreement isn't reached on the sequester cuts". They have not done that so far - and that confuses me. Yesterday the Dow and S&P 500 Index went up by 35 points (14,090 close) and 3.52 points (1,518 close) respectively on March 1 - a day when the algorithms must have been processing minute by minute 'sequester news' at mind-boggling speed.

I certainly hold to the view that non-agreement must lead to both a weaker U.S. economy and a weaker U.S. Main Street. However, I am no longer nearly so sure that the 'last debt-ceiling negotiation scenario' will be repeated. This in particular after the aforementioned - what I think to be 'unnecessarily strong' - statement by Mr. Boehner.

That said Mr. Boehner also is reported as saying yesterday "I did lay out that the House is going to move a continuing resolution next week funding the government past March 27, and I'm hopeful that we won't have to deal with the threat of government shutdown while we're dealing with the sequester at the same time". Query: Does this infer further sequester discussions are not foreclosed, or does it simply mean 'dealing with the sequester consequences as they arise'?

I also in my Newsletter yesterday said:

"If I am assessing things correctly, $85 billion is about 2.2% of budgeted U.S. federal spending, and not quite 10% of the budgeted deficit. Of course, if the sequester cuts are made, the U.S. federal government revenue intake for fiscal 2013 will almost certainly be negatively impacted. The point in all this is that from my perspective the foregoing demonstrates 'how close to the line' America is from a federal fiscal point of view."

As I re-read that paragraph, I have concluded that what I said may be too opaque. To be clear, the point I was (and am) making is:

in the overall scheme of America's national debt and deficits, $85 billion per year is rather immaterial;

if one accepts $85 billion to be immaterial in a U.S. federal accounts context, the forecasted impact of the sequester cuts in a the next seven months on GDP (0.5% decline) is material, and lost jobs (400,000 - 750,000) are significant; and,

consider the negative impact on America's economy if this year's U.S. pre-sequester federal budgeted spend of $3.8 trillion was cut by $300 billion instead of by only $85 billion. Query: How much more would the negative leverage on U.S. economic performance then be, and would a $300 billion U.S. federal spending reduction result in an exponential negative economic impact?

Interestingly, I have seen no report or comment on what the resultant U.S. federal deficit is expected to be for fiscal 2013 following sequester cuts. If U.S. GDP indeed drops by 0.5% as a result of the sequester cuts, I would expect U.S. federal government revenues to fall from pre-sequester forecasts. If that is right, and I think it has to be, then what was forecast to be a $900 billion 2013 U.S. federal deficit will be more than the result derived by deducting the $85 billion in sequester cuts from the previously forecast $900 billion 2013 federal deficit ($815 billion).

That is perhaps a better way of explaining what I meant last Friday by the phrase "the foregoing demonstrates how close to the line America is from a federal fiscal point of view".

America is still without question the world's largest and most important economy. That said, you can only pump helium into a balloon for so long before it explodes. Typically an exploding balloon does not hurt anyone. America is not a balloon.

Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining and Oil & Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at icampbell@srddi.com

© 2013 Copyright Ian R. Campbell - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in