(FT) The U.S. faces the prospect of a fresh financial shock

Posted by Kendall Harmon

The $1.2tn in automatic spending cuts that Barack Obama once promised to avert are looking increasingly likely to occur because of entrenched politics in Washington, threatening a shock to confidence in the US economy.

Economists have long assumed that the so-called sequester – a budgetary mechanism passed in 2011 that takes effect on March 1 and slashes the Pentagon’s budget by $600bn over 10 years while cutting discretionary spending for government programmes by another $600bn – would be replaced or reversed by Congress.

Many saw a recent move by Republicans on Capitol Hill to extend the US borrowing authority as a sign of greater co-operation with the White House. But conservative lawmakers have recently made it clear that they were simply gearing up for another fight, and are prepared to take a hard line on the $1.2tn in cuts even amid objections from military hawks.

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Filed under: * Economics, Politics • Defense, National Security, Military • Economy • The U.S. Government • Budget • Politics in General • House of Representatives • Office of the President • President Barack Obama • Senate

4 Comments
Posted January 28, 2013 at 5:30 am [Printer Friendly] [Print w/ comments]



1. APB wrote:

Politics is the art of the possible.  That normally means what you can negotiate, but it also means what is reality.  It isn’t politics to repeal the Law of Gravity because it is not possible.  The reality is that the spending policies are unsustainable with even European levels of taxation.  (This ignores the wisdom of that spending, which is political.)  The president is firmly convinced that spending is not the problem.  This is delusion.  So we have on one hand a sure path for disaster, and an alternative which will be damaging, but may be necessary to shock the country into reality.  Note that the $1.2tn cuts over 10 years equals the deficit in a single year.  Much of the country realizes this, but it never seems to reach the political and media classes.

Richard Dawkins is not someone I frequenctly quote, but he has said at least one wise thing:
When two opposite points of view are expressed with equal intensity, the truth does not necessarily lie exactly halfway between them.  It is possible for one side to be simply wrong.

January 28, 8:25 am | [comment link]
2. Archer_of_the_Forest wrote:

First of all, this is $600 billion over 10 years. It’s not all going to be cut at the same time. Secondly, most of it is “cuts” to to annual increases in spending, which really are not cuts at all. So, most actual spending will not be touched. Thirdly, we’re talking billions not trillions, which is what the annual deficit actually it. This is peanuts, and people are carrying on like its a fiscal cliff of no return. Only in Washington…

January 28, 8:50 am | [comment link]
3. Katherine wrote:

I am becoming more and more convinced that letting the sequester cuts roll is the only way we’re going to see any spending restraint, however puny, at all.  A sensible Senate and President would compromise with the House and produce more carefully targeted cuts, but we lack common sense in the Senate and the White House.

January 28, 8:59 am | [comment link]
4. Br. Michael wrote:

Remember (tape this to your computers):  A tax cut in Washington speak is nothing more than a reduction in the rate of projected spending increases.

January 28, 11:22 am | [comment link]
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