Sequester Q&A: For US, A New Season Of Uncertainty
A: The seeds of the sequester were sown by a demand by House Speaker John Boehner, R-Ohio, that the 2011 debt limit increase be matched, dollar-for-dollar, by cuts in federal spending. After "grand bargain" talks between Boehner and Obama broke down, the White House came up with the sequester idea as a way to guarantee large enough deficit cuts to offset enough new borrowing to make sure Washington didn't have to revisit the debt limit until after the 2012 elections. The sequester threat was designed to be so harsh that it would drive the sides to compromise on an alternative.
It didn't work. House Republicans twice last year passed legislation to replace the cuts with larger savings drawn from programs like food stamps and federal employee pensions. Democrats controlling the Senate didn't offer an alternative and instead put their faith in postelection negotiations to avert the "fiscal cliff," which resulted in Obama claiming victory on his promise to raise taxes on the rich but only a two-month respite from the sequester. Now, Republicans say they won't give in to demands by Obama and the Democrats controlling the Senate for higher taxes as part of any solution.
Q: How quickly will the sequester's impact be felt? How will we notice it?
A: It depends. At first, the general public may not much notice the cuts. The sequester isn't a government shutdown; it's a government slowdown. Furloughs of federal workers â¿¿ forced unpaid days off â¿¿ generally won't start for a month due to notification requirements. Many government contracts would still be funded using money previously approved even as agencies slow down the awards of new contracts. But furloughs of workers like air traffic controllers, meat inspectors, FBI agents, the Border Patrol and park rangers will mean an inevitable deterioration of noticeable government services that could, for instance, force intermittent closures of meat packing plants and shorter operating hours at smaller airports.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV