Yet Another False Deadline

 
CIO Vantage Point; Economic Outlook
March 06, 2013 Posted by:

The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates.

It's no wonder we don't worry about the same things as Washington.  After all, there are many differences between us and them. 

For example, we don't have a printing press; we have to work for a living.  Elected representatives are evaluated in the short-term, needing to achieve re-approval every two to six years.  Also, we have to live with the outcomes of our decisions while most in Washington are able to deflect any relevant criticism, relying on some level of blind faith by their support base.

For example, when Congresswoman Maxine Waters was questioned about her claim last week that we could lose over 170 million jobs due to the sequester, she responded saying she meant 750,000 jobs.  Given there are only about 140 million jobs currently in existence, this seems like an easy mistake, right?  Yes, I'm absolutely certain all our leaders are in tune with the challenges to our economy.

Now, five days into sequestration with the earth still spinning, we are being told that the real pain won't come until later in the year.  Instead, we should worry about our next deadline of March 27th when the government will "shut down" without Congressional action.  (Does anyone think this deadline won't be pushed as well?)

It is true that sequestration cuts are significant, but at about 2 percent of total government spending, they could hardly be deemed "cliff-like."  (Apparently neither could the actual fiscal cliff)

Instead, they were formulated to be quite ridiculous in nature in order to force Congress to agree on its fiscal problems instead of initiating such thoughtless cuts.

The cuts themselves are targeted at defense and non-defense discretionary spending.  As seen in the graph below, these spending levels are already near their lows as a percent of GDP and sequestration will only drive them down further.

gso discretionary spending 313

No one in Washington wants to implement these exact cuts, but the philosophical divide today is so great that no alternative seems within reach either.

Today's uncertainty in Washington is affecting the economy by keeping the private sector on the sidelines due to an inability to understand the "rules of the road" going forward.  Until some agreement can be reached regarding not only our fiscal issues, but regulatory and social as well, I would not expect a strong private sector economy - regardless of what the pundits say about housing.

*Source of graph is Stone McCarthy Research

The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or SVB Asset Management, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.

SVB Asset Management, a registered investment advisor, is a non-bank affiliate of Silicon Valley Bank and member of SVB Financial Group. Products offered by SVB Asset Management are not FDIC insured, are not deposits or other obligations of Silicon Valley Bank, and may lose value.

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Joe Morgan

Joe Morgan, CFA

Chief Investment Officer
SVB Asset Management
Location: San Francisco, CA
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