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3 Fiscal Crises Heading Our Way

By: Eagle Financial Publications
Posted: 2/22/2013 2:51:00 PM
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By Mark Skousen

Three federal crises are heading our way -- the "sequester" battle on March 1, the end of the "continuing resolution" of the budget on April 1, and the next "debt-ceiling" debate around May 1. It could be a rocky spring on Wall Street.

Everybody, including Wall Street, seems to be upset that another fight is erupting on Capitol Hill over spending cuts mandated by the budget agreement last year known as the "sequester."

And at the end of next week, on March 1, the "sequester" will kick in. It triggers about $85 million in annual spending cuts across most government agencies, including the military, the Department of Education and the Department of Justice. Yes, the cuts are only $85 million. That's a drop in the bucket, compared to the $3.8 trillion dollar federal budget. Big government supporters complain, "These cuts will result in furloughs, loss of overtime, and probably some layoffs, especially if they are permanent."

Give me a break. The entire $70-billion budget of the Department of Education is a waste of money, and could be abolished. In fact, it would probably help education and the economy in this country.

The Congressional Budget Office, all Keynesian economists, estimates that the sequester cuts, combined with the tax increases earlier this year, will reduce 2013 gross domestic product (GDP) growth by 1.5 percentage points. I have my doubts. Monetary policy is extremely easy and will keep the economy well stimulated.

The second crisis involves the "continuing resolution" to fund the federal government through March. The federal government will have to shut down unless or until another continuing resolution (or budget) is passed by Congress. I hope the government does shut down. That means fewer regulations from the Environmental Protection Agency, the Federal Communications Commission or the Securities and Exchange Commission.

Finally, Congress faces another "debt-ceiling" debate in May. The U.S. government might default on its $16 trillion debt. That might be a good thing -- to teach investors not to depend on Treasuries as a "safe haven" anymore. Treasuries are the true junk bonds of the marketplace.

But it's a hopeless libertarian dream. Congress and President Obama will agree and extend the debt ceiling, extend the "continuing resolution," and avoid any real spending cuts -- until we have genuine political leadership in this country that recognizes what Ben Franklin knew more than 200 years ago: "A virtuous and industrious people may be cheaply governed."

Mark Skousen, Ph. D., is a professional economist, investment expert, university professor, and author of more than 25 books.