♠ Posted by Emmanuel at 3/01/2013 08:41:00 AMOnce upon a time, the great American soul singer James Brown styled himself as Soul Brother #1. In these days of America being flushed down the toilet of history [whooosh], they alas have replaced this great entertainer of the past with a great appeaser of the present who caters to every infantile whim of the American public: Deficits don't matter; we can borrow all we want without consequence, etc. (Go read Krugman for more of that Kool-Aid if it floats your boat.) However, it appears the "we don't want to be Japan" crowd that has championed massive American deficit spending is finally getting a measure of comeuppance from an unlikely source: Debt Lover #1 Barack Obama. This soul- and funk-free appeaser of free-lunch types who has never managed to run a budget deficit of less than a trillion denies coming up with the sequester. Despite attempting to bully veteran reporter Bob Woodward into saying otherwise, it was Obama's idea all along.
The utterly pathetic nature of the US economy is shown by figures that indicate it "grew" in Q42012 by--wait for it--0.1% instead of shrinking -0.1%. After years and years of megadeficit spending, there is really no sustained recovery Stateside. Alike Europe, I am of the opinion that the US has seen its better days and that no amount of monetary and fiscal tomfoolery will reverse baked-in-the-cake, structurally ingrained stagnation. In such a case, it's better to have a negligible budget deficit to go with the inescapable near-zero growth than to pair such "growth" with a mounting pile of debt.
To be sure, the sequester which some hold to have severe consequences for the US economy is a drop in the bucket compared to the enormity of the deficits the country has run after 2007. The Congressional Budget Office predicts the US will run a sub-$1 trillion deficit in fiscal year 2013. Perhaps...I'm not holding my breath, but $85 trillion is savings remains a measly tenth of the $845B deficit it will supposedly have this year. In any case, the sequester is already factored into this relatively optimistic forecast. On p. 31:
If lawmakers chose to prevent those automatic cuts each year without making other changes that reduced spending by offsetting amounts, spending would be $42 billion higher in 2013 [my emphasis] and $995 billion (or about 2 percent) higher over the 2014–2023 period than is projected in CBO’s current baseline. Total discretionary outlays would be $869 billion (or 6.8 percent) higher, and mandatory outlays would be $126 billion (or 0.4 percent) higher.In other words, the touted figure to be sequestered this year is $85 billion, but the actual reductions to the deficit will only amount to $42 billion due to ancillary factors. Still, the idea of a less-than-trillion dollar deficit is enticing if still by no means a certainty. The deficit lover's argument, of course, is that the sequester's reduction of public spending will reduce GDP and have knock-on effects elsewhere in the US jokeonomy:
The onset of sequestration, as the automatic spending cuts are known, threatens growth in the US and globally. It will hit everything from housing vouchers to naval shipbuilding with $85bn in cuts for the rest of this fiscal year.The sequester doesn't matter much in the same way one guy with a pail won't save the Titanic, but hey, at least it's an improvement no matter how minuscule.
Sequestration would mark the first time in three years of budget battles that Barack Obama, the US president, has failed to reach a last-minute compromise with Republicans in Congress.
The International Monetary Fund warned that it would cut its growth forecast for the US as the non-partisan Congressional Budget Office said growth would be 0.6 percentage points slower because of sequestration. The CBO said there would be 750,000 fewer jobs at the end of 2013 if sequestration remained in place.
UPDATE: The bickering has begun in earnest with an aim to rescind the sequester later in the year.