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NC Crowdsourcing! Whither the Deficit Cliffhanger?

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I’m obviously removed from the action, but I’m surprised at the complacency in DC and in the markets over the fact that the sequester is a comin’ soon. Next week Congress is out of session, and the media messaging from both sides at this point lacks the sense of urgency (in particular, front page reports of intense pow-wows) that I’d expect if a deal were to be done by the sequester deadline of early March.

So I have these questions for the NC commentariat:

1. Do you think there be a deal before the sequester?

2. If not, how many days do you think we will be in the sequester?

3. How much do you think the deal will do (on paper) to reduce the 2013 deficit (hint: we know from Europe it will only make the debt to GDP ratio worse, but we’re looking for the official beancount, not the actual down-the-road impact).

4. Bonus question: what do you expect to be the most horrible feature of the deal?

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35 comments

  1. ambrit

    Maam;
    1) Do you think there be a deal before the sequester?
    “Aaargh Mistress! I think there be not!” “Squawk!”
    The reasons being:
    A) Each side can engage in some Kabuki, and pander to their base bases.
    B} Politicians can point to how the world did not end and say, “See? That wasn’t so bad. Now here’s how we’re going to make all those “Entitlement” cuts and ‘get away with it.’”
    C) The Parties, herein referred as “Parties,” can ‘selectively roll back the sequesters.’ “We only have so much money, nudge nudge, wink wink, so we can only restore such and such to the status quo ante sequestrum.”
    D) They are mostly a lazy bunch of s—s, and will generally misjudge both the inertia of bureaucracies and the publics’ tolerance for gamesmanship.
    E) “Never lat a crisis go to waste.”

    Time to go to work.

    1. Richard Kline

      ‘Wither’ the deficit [sic] cliffhanger [sic]? Yes, by all means. A non-event of non-result being non-news, i.e. nonsense, non?

      Seriously, (if I strain myself to keep a straight face and my eyes from rolling back in my head on this one), this is pure posturing of no larger significance. A deal will result, making trivial difference to the public if that. Six weeks on, no one will remember that there was even a tizzy, let alone a fuse burning down. Politics and media thrive on invented ‘events’ which maximize the leverage of dealmakers, but no one intends for anything of substance or different from business as usual to result: this IS business as usual in the larger schem of things. Not even good theater . . . .

      1. Nathanael

        I think there won’t be a deal for weeks.

        The US Senate is involved. On the last fake crisis, they didn’t manage to get to a deal until weeks after going over the fake “cliff”. In fact, it’s taking longer and longer to get these bogus “deals”.

        “Fiddling while Rome burns” is Congressional policy, so expect nothing to happen until the powerful and connected don’t just scream, but scream for *days*. In this case, it’ll be the military-industrial complex which complains, because for the first time they’re actually getting hit.

  2. rjs

    my sense is that it would be easier for congress to do nothing (ie, let the sequester take effect) then to reach a deal…and i fear any deal would be worse than the sequester itself…

    caveat, i didnt think they’d get a fiscal cliff deal done either..

  3. fiscalliberal

    Congress going home shows they do not figure it is important. The financial community will think debt is not important if thier rice bowl is tampered with.

    It has been said that as long as we can print our money, we will not devault. We need to understand how this is done and its ramnifications. I would guess inflation would be a consequence of that. But what else? Inflation is a parameter. Volker showed us how it is controlled.

    Congress needs to become aware of the phrase: What you do outshouts what you say

  4. jake chase

    There will be a deal, the purpose and effect of which will be to protect ‘defense spending’ (another of my favorite doublespeak euphemisms). We will see some trivial tax increases on ‘the rich’, who will turn out to be those ‘workers’ who somehow manage to take home enough every month to pay the mortgage, the student loan, the credit card loans, and the health insurance tab. It will not touch those living off interest and dividends and capital gains, except perhaps for a swipe at hedge fund managers who are all now rich enough to retire and won’t care if they lose their capital gains rates on ordinary income.

    Of course, it will require ‘shared sacrifice’, which means those now working will find their future social security checks even smaller than they are scheduled to be now. Those now eligible for medicare will have to pay more for it, and doctors will probably receive less for their ‘services’, which means they will have to start seeing 200 patients per day instead of only 150, or even install their wives in the office as secretaries and assistants, in order to continue making payments on the Porche, mortgages, the country club and the drug habit.

    1. Susan the other

      I agree that the sequester is impossible to allow. It would be too hard on the military in a time of such grandiose expansion… in fact the home stretch of finally conquering the world. Which is such a broadly accepted delusion in Congress that they will never cut a dime from the military budget. So some deal will be made. It will favor big donors and various corporations. It will probably be fiscally meaningless, and that’s probably the best we can hope for.

      1. Susan the other

        I think the worst thing about a budget agreement will be that it will solidify the new Free Trade Treaty with the EU. Something tells me there will be huge new incentives for our big fat corporations at the expense of the rest of us and it will be figured into the “budget.”

    2. Nathanael

      If they somehow manage to preserve wasteful military spending while cutting useful domestic spending, it will only accelerate the timeline of the overthrow of the government.

      I actually don’t think the MIC has enough influence in Congress to pull that off, but it might.

  5. Zach Pruckowski

    Well we’ll need a continuing resolution in 6 weeks – 27 days after the sequester hits. So whether or not the sequester hits, it is going to last about 4 weeks until there’s a CR or budget deal.

  6. Cameron Hoppe

    1. Do you think there be a deal before the sequester?
    Actually, yes. I think there will be a small deal and a medium-sized deal. The medium sized deal will be voted-down and then the small, one or two year extension passed. It’ll come to ~$100 billion in “savings” over the course of 10 years.

    2. If not, how many days do you think we will be in the sequester?
    That said, I think we’ll be 3 or 4 weeks in before anything passes. By the time the government pays the additional costs of making everyone right after the sequester, there will be no net budgetary change in 2013. This is actually a good thing.

    3. How much do you think the deal will do (on paper) to reduce the 2013 deficit (hint: we know from Europe it will only make the debt to GDP ratio worse, but we’re looking for the official beancount, not the actual down-the-road impact).
    There will be many pieces of paper, but the net effect of budget changes passed by Congress will be close to zero. We’ll see the deficit continue to fall due to a ~1% drop in the unemployment rate, somewhat higher tax revenues, and return of troops from Afghanistan. I estimate the deficit falls by another $150 billion this year.

    4. Bonus question: what do you expect to be the most horrible feature of the deal?
    Cuts to funding of scientific research, humanities, and the arts. Continued commercialization of those fields, to all of our detriment.

    1. Dan Kervick

      I think there will be no deal before the sequester, and I agree it will be about 3 or 4 weeks following the sequester before the replacement deal is struck: they need some bad economic numbers to come in first to build the pressure to act.

      The debt hawks on both sides want the sequester, because they want the political cover for making cuts to both defense and entitlements. They will let the cuts take place, and then they will make a deal to restore part – but not all – of the lost spending. This will allow both sides to pose as statesmanlike heroes who saved certain programs from an even worse fate. The spending that is restored will be bundled into a new sequestration package, along with some scheduled tax increases connected with loopholes, etc. and again scheduled to take effect at some point in the future unless another deal is made. Same thing all over again.

      The whole game here for DC is to get the cuts without having to vote for them directly. If $2X dollars are hacked from Social Security, for example, and then $X are restored a month later, the MOC who votes for it can run on “She helped restore $X to Social Security while reducing our deficit!” For a military district, just swap in “defense spending” for “Social Security”.

      1. Cameron Hoppe

        Very good guess. I guess the only difference is you think there will be deliberate reduction in the range of $30 to 50 billion this year, while I think it will be zero. In a federal budget of $3 trillion, we agree to within 2%. Not bad if I may say so myself ;)

      2. different clue

        My understanding is that Social Security and Medicare in particular were “held harmless” in the sequester law. So letting sequester happen will not auto-cut Social Security and Medicare. Am I wrong about that?

        Supposing I am right about that, I believe that the threat of sequester was designed to extort cuts in Social Security and Medicare as part of BS Catfood Obama’s “little grand bargain” to save us from the scary sequester. And supposing that, I would rather see the sequester happen. Because Obama and the Catfood Democrats would still have to try selling deliberate cuts to SS/Mcare instead of pretending to achieve “partial restorations” of “sequester cuts” to SS/Mcare . . . which I believe there will not be as per the sequester law itself.

  7. Tom

    1) Do you think there be a deal before the sequester?
    their will be a thousand deals based on thousands of interests producing a deal about nothing – but a deal none the less.
    2)No sequester, just fragmented avenues of attach – everyone will feel cheated – a deal. The whole thing is a facade to show common ground was achieved – problem is, some of what is being compromised upon has no business being compromised with
    3)It will reduce the deficit on paper but will ultimately screw the masses – the design is to balance damaging rent extraction with productive enterprise at the highest corporate gain and at the lowest standard of living achievable that prevents a revolt and keeps the status quo
    4)The most horrible part will be the continued inequality and continued degradation and oblivion to impending disasters – natural and man made or man made disasters like neo-liberalism. – The grand re-balancing and the new-normal. Ultimately – it will fail- just a matter of needing extra time to convince the masses that it is not a failure

  8. Furzy Mouse

    No Deal; the congresscritters are clueless about what to do,and prefer going over the falls to trying to paddle upstream. Intransigence wins the day: might as well go home.

    And when they surface at the bottom of their sinkhole, the critters will re-group, pull out decks of cards, and play poker with all of us…

  9. Renodino

    Thank you NC for raising these questions. I have been wondering myself about the lack of action and concern now bordering on resignation. What gives?
    I did enjoy Leon Panetta’s imitation of a loud barking dog over the defense cuts. Talk about chewing on the scenery. Bravo! Republicans actually seem annoyed by his antics calling them too late in the game to make any difference.
    There has been so much talk about cuts over the last two years without drawing any real blood that this appears to be the one opportunity to get something done on that score without actually having to vote to do it.
    Meanwhile, none of the usual suspects (the U.S. Chamber, the Council on Growth, the CEO Round Table and the Koch brothers) who really run things seem to be making a fuss like they did over the fiscal cliff. In the end, these cuts will mean their corporate taxes stay low.

  10. steelhead23

    1. Do you think there be a deal before the sequester?
    ANS: I hope not because in order for there to be a deal, cuts to social welfare programs would dominate.
    2. If not, how many days do you think we will be in the sequester?
    ANS: 30-60 days. Real impacts begin around March 1 so that is the real “impact event.”

    3. How much do you think the deal will do (on paper) to reduce the 2013 deficit (hint: we know from Europe it will only make the debt to GDP ratio worse, but we’re looking for the official beancount, not the actual down-the-road impact).
    Ans: You’re kidding, right? I understand the “official” number is about $400 billion, but the sequester will not last long enough for this effect to be felt.

    4. Bonus question: what do you expect to be the most horrible feature of the deal?
    Ans: Panic and fear. This leads to poor decision making.

  11. briansays

    anyone benefit from sequestration??
    will they be allowed to get their ill gotten gain before any deal??
    gop will fixate on a short term deal to get them thru the next election (2016 not 2014)under the illusion of a better bargaining position with that nasty socialist in the white house gone

  12. docG

    The oligarchs running the military-industrial complex, plus the banksters we all know and love will make sure there is a deal. No question. I’ll eat my hat publicly on this forum if I’m wrong.

    1. Nathanael

      Remember, these oligarchs are stupid, short-sighted, disorganized, and often severely mentally ill, and they’re prone to infighting.

      Never expect them to do what is good for them…

  13. Brick

    Do you think there be a deal before the sequester?
    No because if they wanted a deal they would have already started behind the scenes.

    If not, how many days do you think we will be in the sequester?
    A time limit of 21 days will be set and market jitters towards the end will ensure a deal.

    How much do you think the deal will do (on paper) to reduce the 2013 deficit?
    2 trillion over 20 years or 50 billion in 2013 on paper only, mainly of social welfare (particularly disability), closing individual tax loop holes and defence.

    what do you expect to be the most horrible feature of the deal?
    Reduction/changes in corporation tax (Jack Lew influence).

    Bonus answer for How much do you think the deal will do (in reality) to reduce the 2013 deficit?
    The deficit gets worse as corporate tax collection declines and disposable income declines hurting the economy.

  14. Doug Terpstra

    Hmmm, will we see castration or not see castration? Not where the eunuch-in-chief negotiator is concerned; he has nothing to lose. Not on Congress either because theirs can’t be found, shriveled or retracted, and certainly not military or offense contractors because they’ve got big brass ones, and not on Wall Street because theirs are golden.

    No, only when the hallowed market begins to wobble will we see castration, and only the American sheeple will undergo the knife . . . or as in the following method used on lambs, appropriately enough, the teeth :

    http://www.youtube.com/watch?v=QErgjt_GYBk
    (not for animal lovers)

  15. Hugh

    The sequester per se has not been a terribly important issue for me. Obama and the Congress made it up. They can make it go away. Like the fiscal cliff before it, nothing much happens initially. Substantial effects would be months down the road. So that’s probably why the politicians aren’t acting with any great sense of urgency.

    One note I have found amusing is how shakey our vaunted military is saying it is. If it doesn’t get every last nickel it’s asking for, the whole damn thing will fall apart. The planes won’t fly. The carriers will be dead in the water. How can they fight six or eight undeclared wars under such conditions?

  16. readerOfTeaLeaves

    1. Do you think there be a deal before the sequester?
    No. IF the GOP can filibuster Hagel, they’re off the reservation. All bets are off.

    2. If not, how many days do you think we will be in the sequester?
    Like the beginnings of WWI, everyone thinks they can guess what will happen. But things will spin out of control, particularly since the GOP and many Dems are still in thrall to the economics of the 1880s railroad Robber Baron era, and 1980s supply-side-trickle-down silliness. This could go on and on and on, until the bankers knuckle down on the Congress.

    3. How much do you think the deal will do (on paper) to reduce the 2013 deficit (hint: we know from Europe it will only make the debt to GDP ratio worse, but we’re looking for the official beancount, not the actual down-the-road impact).
    Without the Big Stick of ‘debt!!’, the GOP is loses power and leverage. It’s become instinctive for them to use ‘The Debt!!’ to scare people into submission, which suggests their economic ideas are used more for bullying than for any valid economically generative purpose.

    The conversation in DC seems quaintly provincial; it fails to address or grapple with the nature of the globalized economy. It’s simpler and easier to obsess on debt, rather than figure out how to engender growth in an economy driven largely by smart machines, robotics, and too little emphasis on public goods and market failures — neither of which the GOP really understands.

    4. Bonus question: what do you expect to be the most horrible feature of the deal?
    The way it perpetuates outdated economic ideas and assumptions, and continues to divert attention from the underlying fraud that lay at the core of the 2008 Meltdown.

    Nicholas Shaxson over at treasureislands.org linked to an exceptional, big-picture piece some months back by BoE Board Member David Potter that seems relevant here:

    Over the last twenty years, one hundred million Chinese may have been added to world manufacturing as low-cost labour (The Economist, 29 July 2010). In the same period, some thirty billion microprocessors have been added to automate much of what we do, and many have automated the processes and machines that make the bulk of manufactured goods across most industries.

    So the Chinese will soon find themselves ‘robosourced’. The Americans have already had that experience. Yet the obsession on debt ratios is a way of avoiding the conversation about real changes and shifts in the fundamental composition of the economy.

    Instead, these legislative ‘showdowns’ and sequesters continue to perpetuate bad, outdated economic thinking in a way that continues to perpetuate sclerotic, outdated, invalid economic ideas.

    Basically, the GOP is using economic ideas from the era of the sailing ship to try and bash and batter an economy impacted by global networks, robosourcing, tax havens, and bad accounting. All the hullaballoo about the debt will only perpetuate failing to come up with new economic ideas that actually reflect today’s realities.
    In other words, ongoing disaster.

    1. Nathanael

      “Like the beginnings of WWI, everyone thinks they can guess what will happen. But things will spin out of control,”

      Exactly. I doubt this will be the actual trigger event, but we’re into the period of history where everything changes. The existing elites think that there will be stability, but there will be only instability.

      When the dust settles, who knows what will be left; I doubt the United States will survive it.

  17. LucyLulu

    No, there won’t be a deal before the sequester takes effect. The deficit hawks aren’t upset because they’ve never really cared about deficits or the debt, only about cutting entitlements. Cutting entitlements doesn’t seem to be on the table right now (while Congress members want them cut, they want somebody else to take the heat and propose them). Boehner has kicked the job to Senate Democrats to pass a bill to replace sequestration. They’re working on one that they expect to pass that will get the funding from, IIRC, 25% defense cuts, 25% repeal of oil subsidies, 50% new revenues from closing (corporate?) loopholes and Buffett tax of 30% on incomes over $2 million. Assuming it passes the Senate, Boehner probably won’t even bring the bill to the House floor for a vote.

    If legislators can recess for a week when there’s no secretary of defense, despite us being at war in Afghanistan, and unofficially at war several other places, why would they worry about the economy? Besides, how many times have they almost crashed it in the last two years already? Not Iran, not national debt, not cyberterrorism, but Congress is our biggest threat to national security. In a just world, they’d all be fired.

  18. TC

    1. Do you think there be a deal before the sequester?

    No. All things considered (and these extend far beyond mere U.S. fiscal concerns), an ultimately contractionary impetus resulting in assets made available for pennies on the dollar (as measured by risk capital committed to secure these) is the inexorable direction the world generally has been embarked upon for the past four decades, and in the present configuration of affairs guiding this rapidly imploding Anglo-American imperial system the pricipal manner by which this objective can and will be achieved requires ever more profound rationalization of available resources of every kind, this no matter how ultimately disruptive the process. So, bring on rationalized government assets via sequestration. Bring on rationalized Chinese assets via competitive currecy devaluation. Bring on rationalized European assets via brutal financial dictatorship (By extension here, then, Bernanke’s employment objective motivating infinite QE is doomed to become an abysmal failure.)

    2. If not, how many days do you think we will be in the sequester?

    As many days as it takes to form the JP Morgan Stanley Goldman Sachs Chase-Citibank of America Merrill Lynch Holding Company.

    3. How much do you think the deal will do (on paper) to reduce the 2013 deficit (hint: we know from Europe it will only make the debt to GDP ratio worse, but we’re looking for the official beancount, not the actual down-the-road impact).

    The deal is done. The number will be whatever the 2011 Budget Control Act requires.

    4. Bonus question: what do you expect to be the most horrible feature of the deal?

    Larry Kudlow’s gloating.

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