Monday, February 25, 2013

Financial Frankenstein

Here we go again:  We find ourselves on the brink of an economic catastrophe and once again, it's of our own making.  How is this even remotely possible?

The clock is ticking on the Sequestration Bomb, a breathtaking little bit of insanity that was created not by some vengeful, pissed-off god, nor by some diabolical cabal of fundamentalist Islamists, nor by a gaggle of Chinese cyber-terrorists, but by our very own Congress.  Back in 2011 when Congress was bickering over the debt-ceiling crisis, our very rational, courageous and forward-thinking representatives decided it would be a good idea to force themselves into taking some action on deficit reduction by coming up with a poison pill so onerous that enacting it would be unthinkable.

Congress has become so good at deferring action on critical issues.  Their philosophy seems to be, let's kick the can down the road and worry about it some other day.  Out of sight - out of mind, they think, but their short-sightedness cannot comprehend the fact that someday the piper will have to be paid and they will have to face the issue again, after it's had a chance to fester and grow and metastasize into something truly scary.

On Friday, March 1st, some $85 billion in budget cuts will be imposed across the board.  Everything is going to be hit, even the sacred cow of defense spending.  There are many dire, horrific, sky-is-falling predictions of all the teachers who will be laid off and the hours-long lines at airport security when TSA agents are sent packing.  $85 billion is quite a chunk of change, but it's less than 3% of the national budget.  How so much pain and disruption could happen at such a relatively small bump in the budget is hard to understand.

The Democrats and the Obama administration have been fanning the flames and doing whatever they can to put pressure on Republicans to get a grip and compromise on a debt reduction deal.  Republicans are refusing to consider any increased tax revenues, thinking instead that the President has gotten all the new taxes he's going to get, and are holding out for big-time spending cuts.  Both sides have dug in their heels and the rest of us have to sit on our hands and slide helplessly into Friday when the Frankenstein monster Congress created comes to life, goes on a rampage and eats the economy for lunch.

It's astonishing how myopic Congress can be, and how it can separate itself from the monster it created and disavow any responsibility for it.  They're acting like they had nothing to do with the impending apocalypse, and throw up their hands as if they are completely powerless to do anything to solve the problem THEY created.

All this is eerily reminiscent of another faux-crisis we all endured, the so-called "fiscal cliff" back on December 31st of last year.  This also was a manufactured event, created not by economic forces but by design, by intention.  I suppose we could glean some comfort in the fact that we survived the fiscal cliff, and we will survive the upcoming sequestration.  Leading economists, such as the always erudite Robert Reich, say that most people probably won't directly feel the results of sequestration for weeks or months or maybe never.

But the economy always seems to be teetering on the brink of "another recession."  The recovery from the financial collapse of 2009-2010 has been anemic at best, and even though the stock market has been flirting with record high levels, there's the very real feeling that it's all a house of cards that can come crashing down any minute.  It wasn't that long ago that the Dow Jones Industrial Average was in the 6,000 range, instead of occasionally peeking over the 14,000 mark as it does these days.

Congress seems to have effectively isolated itself from the effects of these cliffs and crises, and somehow deflects the blame away from itself.  More ominiously, there's the chance that this has become the new "normal" - already the next two "crises" are being teed up:  another possible government shutdown coming on March 27th and more debt-ceiling churn in April.  Instead of governing for the long term, it appears Congress has chosen to merely jump from crisis to manufactured crisis, like a flat rock skipping over the surface of the water, accomplishing very little, and pushing as much as they can down the road, over and over again.

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