Capital Investment Advisors

How Does Sequestration Affect You?

Economic Doomsday is here, thanks to the government spending cuts required by the sequestration that went into effect on Friday. Brace for impact; the economy is about to crash!

Or is it? I highly doubt it, and here’s why:

Government spending is just one part of Gross Domestic Product (GDP), which also includes consumer spending, investment by businesses and net exports.

Sequestration requires $85 billion in across-the-board federal spending cuts. But that figure is misleading. The government has automatic spending increases built into the budget every year. Those increases come to about $100 billion in 2013. So, even if we cut $85 billion from the budget, we are still going to spend $15 billion more this year than we did last year. So the sequestration isn’t really cutting overall government spending. It’s reducing the overall increases in government spending.

Bottom line: These reductions will pull about 1.3 percent out of 2012 GDP. We can survive that with one hand tied behind our backs. We’ve overcome much worse.

No, the biggest threat we face as a nation isn’t these sequestration-related cuts. It’s ending up like the rich guy who can’t pay his credit card bill because the interest rate starts to skyrocket. If we get our finances in order over the next decade or two, we won’t have to be that guy.
We should view this moment as an opportunity to get control of our government’s untenable, dangerous spending. Yes, sequestration’s mandatory across-the-board reductions will undoubtedly inflict some discomfort in some areas of our lives (i.e. less money for air traffic control might leave airports running less smoothly and less on time); but the $85 billion in cuts will hardly impact the most bloated sector of federal spending — entitlement programs, such as Medicare, Medicaid and Social Security. But, hey, maybe this experience will show both politicians and voters that we can survive – even thrive – without Uncle Sam spending himself (and us) into oblivion.
If that happens, it will have been worth waiting 15 more minutes in the TSA security line at Hartsfield.

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