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Earth To Washington: Repeal The Sequester

By  |  Market Overview  |  Apr 26, 2013 07:52PM GMT  |   Add a Comment
 
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Economic forecasters exist to make astrologers look good. Most had forecast U.S.GDP growth of at least 3 percent -- on an annualized basis -- in the first quarter. But we learned, Friday morning, that it grew by just 2.5 percent.

That’s better than last-year's two-percent growth and the slowdown at year's end. But it’s still cause for serious concern.

Why Worry?
First, consumers won’t keep up the spending. Their savings rate fell sharply -- from 4.7% in the last quarter of 2012 to 2.6% from January through March.

Add in March’s dismal employment report, the lowest percentage of working-age adults in jobs since 1979 and January’s hike in payroll taxes, and consumer spending will almost certainly drop.

Median household incomes continues to decline, adjusted for inflation. Another report out Friday showed consumer confidence fell in April.

Lopsided Recovery
Second, the recovery continues to be wildly lopsided. The only thing really keeping it going is the rip-roaring stock market. But the stock market only boosts the wealth of the richest 10 percent of Americans, who own 90 percent of stocks (including 401-K retirement accounts).

But no economy can maintain momentum just on the spending of the richest 10 percent.

Forget Exports
Third, American exports can’t possibly pick up the slack. In fact, they’re dropping. Europe is falling into recession because of austerity economics. Japan is still a basket case. China’s economy is slowing. Much of the developing world’s economy is dependent on exports to the developed world -- so don’t hold your breath for developing countries to bail us out.

So what is Washington doing? Worse than nothing. It has now adopted the same kind of austerity economics that’s doomed Europe -- cutting federal spending and reducing total demand. And the sequester doesn’t end September 30. It takes an even bigger bite out of the federal budget next fiscal year.

Earth To Washington
The economy is slowing. The recovery is stalling. At the very least, repeal the sequester.

You don’t have to be an astrologer to see the dangers ahead.

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