(Cross-posted at http://www.charliehiphop.com/... )
I have heard rumblings that some economic nitwits believe the sequester is good because, two weeks after it went into effect, the economy has not yet tanked and the markets are up.
Allow me to enlighten you as to the real deal:
Regarding the markets' good performance,
this is mostly a response to good news in February, including a glowing jobs report, high consumer confidence, and good retail sales. Markets, contrary to popular opinion, are reactionary, not proactive. This is why Apple's stock soars after the iGadget is a big hit, not before. This is why Enron's stock becomes worthless after the house of fraud blows down, not before. This is why oil prices leap after the Strait of Hormuz is choked off by war, not before.
Anyway, the great economic performance in the early part of this year says nothing of the coming effect of the sequester. What it does support is the idea that tax increases are not necessarily bad for the economy. Remember when your paycheck got a little bit smaller after January 1, 2013? Yeah...
Regarding the sequester and its as-yet-unrealized economic effect,
this will play out over the next few months. At least 750,000 jobs will vanish from the economy overnight. That's what happens when you pull $85 billion out of circulation suddenly; jobs are lost, and not just government jobs. Businesses do business with the government, and people work for those businesses. Government workers shop at businesses. This money is real, and its disappearance from circulation is --
you heard it here first
-- a big deal.
Of course, since metrics and data, by their nature, only reflect what has already happened, not what is happening, and since it takes a while to compile and make sense of these numbers, do not expect the markets or "economic indicators" to show the effect of this for at least a month or two, just like the non-effect of January first's payroll tax increase was not realized until February's numbers came out.
So just wait until the end of April if you want to see just how. fucking. incredibly. stupid. the sequester is.
Here is what I think will be the likely result after the numbers are in and tallied:
- a negative economic growth rate for at least two quarters, i.e., a recession.
- major job losses in the hundreds of thousands for both March and April, most likely continuing beyond that since Congress is undoubtedly too fucking dumb/corrupt/stubborn to do anything to restore the public investment that has been lost
- deflation of commodity prices, accompanied by a slight increase in the value of the dollar relative to other currencies (this may sound like a good thing, but it's not in this case for various reasons)
- possibly a large drop in the stock market (although I wouldn't bet on this) as it reacts to bad job, consumption, and profit numbers (deflation will hurt business profits)
- the bottom will drop out of the housing market again, especially in certain regions like northern Virginia
- possibly a spike in crime and violent behavior as desperation hits millions of people at once
Of course I'm probably wrong about at least a couple of items on the above list, but I am quite sure of one thing: the sequester will go down in history as an incredibly boneheaded move.