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Crisis Du Jour

02/20/2013

Sequestration is almost upon us, and the stock market doesn’t seem to care.  Neither should you!

You’ll recall this odd concept of arbitrary cuts in government spending was created when the Congressional partisans could not agree on raising the debt ceiling in 2011.  Of course, nobody asked why they were more likely to find common ground for agreement in 2013 than 2011.  I guess they were just hoping the 2012 election would break the impasse?

The most asinine aspect to sequestration is that it forces cuts in those areas of government spending that don’t need to be cut and doesn’t cut in those areas that do need to be cut.  The 800-lb-gorilla that is eating more and more government dollars every year is entitlements, like Social Security and Medicare, but is unaffected by sequestration, as is my own veterans disability check.  Meanwhile, construction on infrastructure and Navy ships will stop.  This is crazy, of course . . . but not fatal to either the economy or the market.

My expectation is that government spending will be slashed on March 1st, and I’m hoping the stock market will take a mini-nose-dive, as I have some more money to invest.  However, it will be short nose-dive.  I expect the Republicans will be blamed for the many inconveniences of sequestration.  (TV coverage of those inconveniences, like flight delays, will be 24/7.)  At that point, the Republican half of the Congressional partisans will be forced to make some agreement, realizing there are two more opportunities to manufacture a crisis.

At the end of March, the continuing resolution (CR) that funds our “government-without-a-budget” will expire.  The resulting government shutdown will be much more annoying than inconveniences of sequestration.  Fair or unfair, the Republicans will take the rap for this crisis as well and eventually cave-in.

Lastly, the debt ceiling must be raised in May.  This is the big one!  Sequestration and expiration of the CR will definitely hurt the economy and could even push us into recession.  Failure to raise the debt ceiling could cause a financial crisis, which is far worse than some garden-variety recession.

Each of these three manufactured crises is more painful and embarrassing that the previous one.  Maybe, that was by design.  Maybe, the “can will be kicked down the road” again.  Maybe, the mounting disgust of the American people will shame the Congressional partisans, but I doubt it.  Maybe, there are three more good investing opportunities this year?

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