will US sequester hurt OPL (via BAE)
Incredible, how our neighbours to the south continually appear to govern by crisis.
What's that you say?
"Keep them afraid, and they'll consume?"
Indeed.
https://amzn.com/1458759911
GLTA,
R.
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Today, a series of broad automatic budget cuts known in Washington DC as the sequester are expected to take effect, hitting many areas of the federal government if Congress does not act.
What is the sequester?
"Sequester" is Washington DC jargon for a series of spending cuts totalling $85bn (£56bn) this year and $1.2tn over 10 years. It is scheduled to take effect on Friday.
Why is it happening?
The cuts were created in negotiations over a 2011 bill that raised the US debt ceiling, the legal limit that America is allowed to borrow to fund its budget deficit.
Composed of blunt budget cuts across areas of key interest for both Democrats and Republicans, they were designed to be unappealing. They were meant less as a budget reduction tool and more as a cudgel to prod Congress to find a better way to plug America's roughly $1tn budget deficit.
Under the 2011 plan, the sequester would only take effect on 1 January 2013 if Congress failed to devise its own package of $1.2tn in deficit savings, whether through tax rises or budget cuts.
With the 2012 presidential election taking shape, Congress failed to act until 1 January 2013, in a deal that raised tax rates on incomes over $400,000 and postponed the sequester until 1 March.
What is to be cut?
The cuts are roughly evenly divided between military and domestic spending. Agency heads may not protect certain programmes deemed essential in order to take larger hits in other areas.
Many mandatory programmes like the Social Security pension programme, Medicaid healthcare for the poor, food aid, and others will not be affected.
In recent days, President Barack Obama and his cabinet officials have warned of harmful impacts on:
- Medical research
- Education budgets
- Military readiness
- Services to victims of domestic violence
- Vaccines for children
- Food safety, as meat inspectors are taken off the job
- Queues at border crossings
- Airline travel and aviation security
How bad will it be?
President Obama has warned the cuts will slow the US economy, eliminate jobs, and "leave many families who are already stretched to the limit scrambling to figure out what to do".
The Pentagon has also sounded the alarm, having already begun cutting 46,000 temporary workers and saying it will force staff to take one unpaid day off per week starting in April.
Some senior Republicans, meanwhile, are downplaying the threat.
"I don't believe the world will end," Senate Minority Leader Mitch McConnell said on Tuesday.
What will happen after the deadline?
The cuts to the federal budget will not hit all at once. Many actions planned by agencies cannot take effect immediately and the cuts will ramp up through the year.
The Republican-controlled House of Representatives has twice passed bills to replace the sequester with other cuts.
But many of the cuts included in the House bill are unacceptable to Senate Democrats and Mr Obama, who have unveiled their own proposals to replace the sequester with spending cuts and tax increases. Republicans say they will oppose any tax rises.
Correspondents say that many in Washington DC expect a deal will come after 1 March, as the outcome of the cuts becomes more apparent.
But another fiscal deadline looms in late March, when the continuing resolution that has served as the federal government's working budget for the past year expires.
If a new budget or temporary resolution is not in place by 27 March, much of the federal government will shut down.
Some groups will feel the pain more than others. Here is a timeline of who will get hit and when:
Immediately
Those who work for defence contractors have already started to feel the effects of the sequester. "Several companies have already reduced their workforce or hiring."
That is because defence spending could take a hit to the tune of $46bn this year and $495bn over the subsequent nine years. Companies that rely on federal defence funds are planning for the worst.
So too are some private-sector companies who are not targets of the automatic cuts but worry about their effect on the general economy.
"For people that make decisions based on projections of where the macro economy is going over the next six months to a year, they are already going to start building in the assumption that the economy is not going well."
That is because the lead-up to the sequester saw flat growth in the Gross Domestic Product and unemployment figures. "We're on the edge of the recession right now."
The cuts - which would lead to lay-offs of federal employees, teachers, and other workers - could push the US right over that edge. In preparation, private companies may scale back hiring and expansion plans.
Three to six months
Federal dollars for the year have already been allocated, so social service agencies and other recipients of government money will not immediately see their budgets slashed. But once they run out of federal money, they are out. Some teachers will finish out the school year, but "come May or June, they are going to be told they're not coming back."
States have discretion over how they allocate money given to them by the federal government, so different programmes will run out of money at different times depending on the state.
But predictions that between now and September, programmes like Meals on Wheels, which provides food to homebound citizens, will run out of federal cash in several states.
Six to 12 months
Expect the general American economy to take a hit over the next year.
"The [Federal Reserve] itself is saying no improvement in the economy over the next 12 months." It is also predicted that the cuts could knock half a percentage point off the Gross Domestic Product and keep the unemployment rate between 7.3% and 7.7%.
Economic reports produced on the last day of February indicated slight growth in the economy, with more confidence in consumer spending and fewer layoffs, according to the Wall Street Journal. But the budget uncertainty has economists worried that growth will stall when the flow of federal money slows.
"That's the reality of austerity, and once that reality sets in, certainly it's not going to help move the economy forward."
By then, the government may come to a new agreement restoring funding to needed areas. But until then, those who depend on government funds - whether billion-dollar weapons companies or a hungry, housebound pensioner - may have to get used to doing more with less.