By Ralph Schwartz
As I wrote in Tuesday’s paper, it appears more likely than not that the sequestration of the federal budget will happen come Friday, March 1.
But how important is this latest toll from the fiscal doomsday clock?
NPR came out with a fun report about how countdowns such as the sequestration might have a larger psychological than economic impact.
Foxbusiness.com said the stock market doesn’t seem to care that mandatory, across-the-board cuts to the federal government are less than two days away. The market had a very good day today, with indexes rising by 1 percent or more.
Investors aren’t watching Congress debate (or not) how to head off the budget cuts; rather, they are watching Federal Reserve Chairman Ben Bernanke testify before Congress. What seems to be pushing stocks up more strongly than any downward forces are the policies of the Federal Reserve, which is keeping interest rates low, encouraging investors to drain low-yield savings accounts for the riskier but more profitable market.
While there is a lot of angst about the sequestration, there’s not a lot of satisfying things that can be said about what it will bring.
From the NPR report:
While there’s widespread concern about the impact of budget reductions, says James A. Cowen, a senior vice president at Ogilvy Public Relations, “that impact is not totally clear. The automatic spending cuts will affect different groups at different times in different locations.”
The military will be disproportionately cut, and that should have a discernible impact, the NPR report says.
“The defense budget is like the housing sector,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. “The military spends – they buy uniforms, they buy guns, they buy machinery. It would cut across the economy.”
It’s a lot like death, as my father says. We might worry ourselves over what’s coming after, but at least we’re gonna find out.
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