Sequester: Who’s to Blame?

I think the President has done an excellent job of scaring the crap out of everyone over the sequester. The administration has used all of the key department heads to get on national TV and warn the country that some very terrible things are about to happen. Liberal Senators and Congressman have all chimed in with the fear talk. But today we went totally over the top.

Maxine Waters has said that the sequester could cost as many as 170,000,000 jobs. That would be some feat Maxine, there are only 150m workers in the country. I doubt the sequester will put them all out of work, much less the extra 20m.

The CBO did a quick review of the sequester today. The cuts for the balance of the fiscal year come to $42b; an amount that is equivalent to 45 points on Apple’s market capitalization. I have trouble believing that the country is going to fall off the cliff with a 2% cut in government spending.

The sequester was designed to be a meat axe. The assumption by most observers was that it was would be such a dumb thing to implement, that both sides would come up with a more workable alternative. This sets up the worst-case scenario where a relatively small reduction in spending results in headline problems. While Ms Water’s projections will not be realized, there could be flight delays, disruptions in the food supply and other visible issues.

If some of the scare talk about the sequester becomes a reality, there is going to be hell to pay. The question is, Who is going to get blamed?

Obama won the election. Mitt got 47% of the votes, Obama got 51%. There is no mandate behind that result. Of those over 18, only 58% voted. The 120 million who did not vote may not have cared about the election, but their voices might be heard if the grocery store runs out of meat. I would not be surprised if some of the 30 million teenagers get involved.

The answer to the question of who gets blamed is, “All of them”. I see a silver lining in that outcome. As stupid as the sequester is, I hope it causes all sorts of distortions. I want Obama to take every step possible to make it as painful as possible. (I think the President will do just that.) His motivation will be to get public support to swing further from the Republicans. Obama might end up with a public reaction that he can’t contain. Not much of a legacy.


– S&P plays into this story. When it downgraded the USA it made the reasoning behind the decision clear. It was not a reflection of the inherent strength of the USA, the reason was the inability of D.C. to do anything but go from month-to-month year-to-year with no budgets and no plans. On that basis, I thought the downgrade was justified. Based on what is about to unfold, another notch downward would also be justified.

– The Sequester may prove to be a pain in the ass that causes more problems than anticipated. It’s still a side show to the Main Event. There are now 26 days before the government is forced to shut down. Either a budget is passed by Congress or a Continuing Resolution is required. As of today, I see zero possibility of a fix on on the CR.

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About Bruce Krasting 208 Articles

Bruce worked on Wall Street for twenty five years, he has been writing for the professional press for the last five years and has been on the Fox Business channel several times as a guest describing his written work.

From 1990-1995 he ran a private hedge fund in Greenwich Ct. called Falconer Limited. Investments were driven by macro developments. He closed the fund and retired in 1995. Bruce also been employed by Drexel Burnham Lambert, Citicorp, Credit Suisse and Irving Trust Corp.

Bruce holds a bachelor's degree in economics from Ithaca College and currently lives in Westchester, NY.

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