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Spot The Sequester And The Consequences Of NOT Putting Our Fiscal House In Order

Spot The Sequester And The Consequences Of NOT Putting Our Fiscal House In Order

By Anthony Sanders

The rhetoric about the sequester is mind numbing. To listen to analysts and politicians, the sequester will be like The Titanic striking an iceberg all over again. President Obama warns of thousands of teachers being laid off, beef prices skyrocketing because FDA inspectors will be laid off, etc., etc. As Bill Murray said in Ghostbusters, “Human sacrifice, dogs and cats living together, mass hysteria…” Absolutely savage spending cuts.

But seriously, can you spot the absolutely savage budget cuts that will cause the mass hysteria? It is almost unnoticeable among the leviathan Federal budget that only keeps growing.


Another view of sequestration impact is the small green bar representing the cuts relative to the budget and the deficit.


Here is another view showing the sequestration is almost imperceptible.

AAF Sequester Perspective 1 3

In other words, sequestration barely puts a dent in our budget deficit.

But what if sequestration is cancelled AND unemployment rises again? David Greenlaw, James D. Hamilton, Peter Hooper and Frederic S. Mishkin have written a paper entitled “Crunch Time: Fiscal Crises and the Role of Monetary Policy.“.

In their paper, they perform a simulation of what could happen to the 10 year Treasury rate. And it is horrifying.

Sequester cancelled LT 10 year rate

Using a similar simulation, they find that the US debt to GDP will eventually rise to over 300%.

Sequester cancelled LT Debt to GDP

So it looks as if cancelling the sequester would be a disaster. But it brings me to a final point. If our economy is so sensitive to small Federal spending cuts, isn’t this an argument to keep the size of government as possible?

But George Mason’s own Steve Fuller (School of Public Policy) is among those predicting a disaster if sequestration goes into effect. But Greenlaw, Hamilton, Hooper and Mishkin say the exact opposite: if we CANCEL sequestration, there will be a disaster. Take your pick.

In terms of Virginia, Fuller claims that nearly 10 percent of the 2.1 million jobs that would be cut under sequestration would come from Virginia. Of those, 136,191 Virginia jobs would be lost due to defense cuts; another 71,380 jobs in this state would vanish thanks to non-defense cuts. Virginia could also look forward to a $20.8 billion loss in gross state product.

I wish that Congress and the Administration had agreed on spending cuts in another manner other than sequestration. But perhaps events like sequestration are the only way to enact controls on spending growth.

All that because of small cuts to Federal spending that is barely noticeable on the charts? This is the problem when the country (and specific areas) are so dependent on Uncle Sam.

Source: ConfoundedInterest

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