Media Hype Over Sequester Cuts

President Obama is playing the media like a fiddle (more accurately like the fools they are). Countless mainstream media articles talk about the devastation that is sure to follow if the sequester cuts take place. Obama has even hyped this us with threats of cuts on vaccinations for children.

Here is one example of the hype: New crisis looms as budget cuts hit US on Friday.

Billions of dollars in harsh budget cuts are hitting the U.S. government on Friday, and officials are conceding that last-minute moves by both Democrats and Republicans in Congress to soften the blow are doomed.

Economists and lawmakers alike agree that the cuts, the potential shutdown and the country's series of fiscal crises overall are hurting the country's shaky comeback from the Great Recession, and the effects will be felt around the world. Both political parties have said the cuts — of 5 percent to domestic agencies and 8 percent to the military— could inflict major damage to government programs and the economy at large.

Obama, speaking to a group of business executives Wednesday night, said the cuts would be a "tumble downward" for the economy, though he acknowledged it could takes weeks before many Americans feel the full impact of the budget shrinking.

Domestic agencies would see their budgets frozen almost exactly as they are, which would mean no money for new initiatives such as cybersecurity or for routine increases for programs such as low-income housing.

"We're not going to do that," said Sen. Tom Harkin, a Democrat.

Budget Freeze Oh My!

My friend Tim Wallace pinged me today with a few thoughts. ...

Hi Mish

In 2006 the Federal spending was $2.6 trillion. In 2008 the budget had gone up to $2.9 trillion, an increase of "only" 12.2% in two years. Then, the "financial crisis" hit and a "one time" increase in the budget was put in place to bail out all the political cronies.

That "one time" increase ballooned the budget to $3.5 trillion, an increase of 18% over 2008, but an increase of 32.6% over 2006!

So, what happened to this "one time" increase? Did it go away the next year? Of course not!

Federal spending has remained above $3.5 trillion since, and is even up again to about $3.6 trillion. This is 33% more than 6 years ago.

Suppose inflation was the basis for budget increases. Then let's use the joke of a 2% a year inflation rate that Bernanke claims. On that basis, spending based on 2000's numbers would be $2.3 trillion! If you double the rate of inflation to 4% a year since 2000, spending would be $2.9 trillion ($600 billion less - each year than the current budget).

Clearly the problem is spending yet allegedly mere decrease of $85 billion (most of it back-loaded) is too much for Obama and Bernanke.

Tim

This media hype over sequestration is ridiculous.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.