US sequester: Crying wolf

2013-02-28 09:32
Prepared meals sit in a box in the kitchen at Meals On Wheels of San Francisco. Programmes for the poor like Meals On Wheels, which delivers meals to homebound seniors, could be affected if $85bn in federal spending cuts come down due to sequestratio

Prepared meals sit in a box in the kitchen at Meals On Wheels of San Francisco. Programmes for the poor like Meals On Wheels, which delivers meals to homebound seniors, could be affected if $85bn in federal spending cuts come down due to sequestratio

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Chicago - The repetition of the USA's economic fights is turning the public away.
 
From tomorrow the US will begin to undergo a series of budget cuts it intentionally put together to hurt itself – and we know what happens to everyone else when the US economy isn't in good health. Fear not, however, as the cuts will take place over the next ten years and if history is anything to go by, Congress will come up with some sort of solution in the near future.
 
If you remember when Republicans won a majority in the House of Representatives in the 2010 Mid Term elections, they managed to turn the main public debate toward the USA's debt and deficit, both of which are high in comparison to GDP, but neither of which were directly threatening the economy at the time. This conversation happened in spite of Democrats retaining control of the other legislative chamber, the Senate, and the presidency.
 
Either way, when Republicans took office in the House at the beginning of 2011 they took this problem so seriously that they threatened to shut down the government in April, and then to refuse to raise the debt ceiling in September. The latter would have seen the US default on its debt, which could have been catastrophic for the global economy. The fight over the debt ceiling – simply, it was a fight over whether the USA should pay the bills it has already racked up – ended up costing the world’s largest economy its top credit rating, as judged by Standard and Poor's. The stock market reacted horrifically, with the three major indexes down, along with global stocks. It really wasn't pretty.
 
The agreement undertaken by the US government to resolve (I use the word in its loosest sense) this debt ceiling problem in September 2011 was to set up a committee – with 6 Democrats and 6 Republicans – to shave $1.2-trillion from the USA's total debt, which now stands north of $16-trillion, failing which automatic harsh spending cuts and tax increases would kick in at the end of 2012.

The cuts were never meant to become policy – everyone thought the cuts were so bad that they would spur Congress into action, serving solely as a motivator. The committee failed, as did further negotiations, and the end of 2012 deadline became known, incorrectly, as the fiscal cliff. I say incorrectly because the term implied irreparable damage would be done to the economy if the deadline was exceeded. Well, the deadline was exceeded, and just before 2 January a Senate-brokered deal made it through the House.
 
This deal raised taxes on some wealthy Americans, but in essence changed very little else relating to the debt, kicking the deadline for the budget cuts (now known as the sequester) to 1 March. Not long after that there was a potential repeat of the debt-ceiling fight, but polling showing Republicans were being blamed for these constant economic shenanigans saw them back down from that fight.

Public losing interest

This brings us to the sequester deadline, over which neither party has decided to yet give an inch. Republicans responses have been somewhat varied: Some Republicans are railing against the cuts, while others believe it is the best way to get reductions in government spending. Democrats, on the other hand, have a more collective view: They hate it, and have been hating on it on Republicans' behalf too. President Obama has been running around the country warning everyone of the dire effects of the sequester, particularly when it comes to the budget for the Department of Defence, which according to a Gallup poll, is significant. According to the poll, undertaken in early February, 51% of Democrats believe the government spends too much on the military, and 12% believe too little, while only 17% of Republicans think it spends too much, but 45% say it spends too little.
 
Although we still have a day to go, this time the markets haven't reacted: On Wednesday the Dow closed up 1.2%, the S&P 500 up 1.2% and the Nasdaq was up 1%. All the huffing and puffing by those in charge to avoid the sequester has struggled for resonance amongst the American public: A new NBC/Wall Street Journal poll shows 53% of Americans favour the current spending cuts or even more cuts.
 
This largely suggests people have lost interest, in what is now the fifth major economic political fight in two years – the previous four of which have finished with both parties coming to a deal without breaking the economy, in spite of continual threats from a band of House Republicans to do so.
 
So forgive the American public for a lack of interest this time around. And when it comes to a fight over a government shutdown later in March. And another debt ceiling fight in May.
 
If you want to pique the public's interest, try to get your house in order.


- News24
Read more on:    barack obama  |  us  |  us economy
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