Fiscal Showdown Trilogy – Part III: The Sequester

Automatic Spending Cuts
Automatic Spending Cuts

First we had the “Fiscal Cliff,” then the “Debt Ceiling” and now we are at part three of what I refer to as the Fiscal Showdown, “The Sequester.”

This Fiscal Trilogy of government dysfunction is likely to spawn another sequel…which ironically will have its own trilogy, part three of the Debt Ceiling debate sometime in May/June (part one was in 2011, part two was just resolved today).

The Fiscal Cliff was resolved, but not until taking the country to the brink and not in a manner that is actually productive.  The Debt Ceiling extension, which will be signed into law sometime today or next week was a benign debate, punted on by the House Republicans in order to work on the Sequester.

What exactly is the Sequester and why is this third installment of the Trilogy likely to be the most contentious yet?  As in all final trilogy installments, the climatic battle must play out and after being defeated handily in part one and part two, the Republicans need a win in advance of the next election.  In other words, if you thought the congress (I refuse to capitalize that word) and President were suddenly getting along on fiscal matters (the quick deferral on the debt ceiling) you would be misreading the tea leaves.  We are 28 days away from significant spending cuts going into effect, which, on the heals of a negative GDP print…could spell recession.

The Sequester came out of a contention showdown on the Debt Ceiling Debate back in 2011.  The only way the two parties could agree on raising the debt ceiling was to form a commission that was to find spending cuts that both parties could agree on – if the commission failed, spending cuts to both parties more favored programs would be implemented.  $1.3 Trillion over ten years is the projected cuts if nothing is done.  Some programs or parts of programs are exempted, such as military pay and medicaid.

The problem with the Sequester are many and have the potential to significantly affect the economy negatively, not to mention programs designed to help the poor.  It’s not just the cuts, but the way the cuts are to be implemented (essentially, across the board).

If you’d like to learn more about the sequester I’ve posted a few articles for you below:

The Sequester Explained   {The Washington Post}

The Idiocy of Sequestration {Slate}

Congress Sees “Sequester” Cuts As Likely in March {Wall Street Journal}

You will hear more and more about this as we get closer to the end of February, expect the rhetoric to hit a fever pitch – Part Three of this Trilogy is going to be interesting.

“These are not the spending cuts you are looking for”

Scott Dauenhauer, CFP, MSFP, AIF

scott@meridianwealth.com

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One thought on “Fiscal Showdown Trilogy – Part III: The Sequester”

  1. I’m starting to think we have too many lawyers in congress, and not enough MSFPs. They obviously don’t have a clue. Heard a talk show host say the other day that congress should be required to take Economics 101 over and over until it sinks in.

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