Sequester: Reasons to Worry #Barrons $SPY

Sequester: Reasons to Worry #Barrons $SPY

The Dow Jones Industrial Average is flirting with a record high and the Standard & Poor’s 500 index has risen nearly 2% in the past few days. Given the hysteria that accompanied the fiscal cliff, this seems strange.

Some of this is understandable — it feels as if we’ve been beaten over the head with talk of fiscal doom and catastrophe for at least the past 18 months. But don’t forget that when Congress put the sequester’s cuts in place, they intentionally put in cuts that were so harsh and indiscriminate that they figured there’d be no way they wouldn’t reach a fiscal compromise before they came into effect. This was never designed as a sensible way to improve the nation’s finances.

Maybe the reason nobody seems too worried is that the sequester doesn’t seem quite as exciting: It’s entirely domestic (no downgrades and international crises like the fiscal cliff) and it will take time before the economic effects are felt.

But the impact of the sequester will be real. Already we’ve seen fourth-quarter GDP andJanuary’s durable-goods orders both hurt by the pullback in government spending, and nowsmall businesses say they are already suffering. And a study by Third Way and Regional Economic Models estimates that if the sequester’s cuts are allowed to stand, by the end of next year the US would have 1.9 million fewer jobs than it would if the cuts are averted.