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.
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
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