ABA Banking Journal - March 2013 - (Page 8)

the economy BY Carl Tannenbaum The good and bad of sequester cuts The markets closely watched the March 1 deadline Sequester’s tally when the federal government spending cuts of $85 bilBillions of dollars lion in fiscal year 2013 were to take effect as per the Affordable Budget Control Act. Often referred to as the “sequesCare Act $7 ter,” this event was the first installment of a $1.2-trillion Medicare reduction in government spending to be put in place Other $123 Non-defense over a period of nine years. mandatory $41 discretionary Some analysts have hailed the sequester as a credible $322 budget-reduction program. And that it is. Assuming the entire gamut of spending cuts occurs, the CongresInterest sional Budget Office (CBO) estimates that the federal payments $216 deficit would shrink to $845 billion and $616 billion in fiscal years 2013 and 2014, respectively, from $1.09 Defense trillion in 2012. If these estimates are accurate, the discretionary economic ramifications are largely positive. Pressure $492 on interest rates will be reduced as the federal government’s participation in credit markets declines. Yet, a decline in federal-government spending directSource: CBO Total: $1.2 trillion ly reduces real growth, and potential offsets follow with a lag. Assuming a fiscal-spending multiplier at the midpoint of the CBO’s stated range, our current estimate Congress must pass the federal of real GDP growth will be reduced 0.5% in 2013 (fourth quarter to fourth budget for the next fiscal year by quarter) if all provisions of the sequester take effect. April 15 to prevent a delay of their Drilling down to the details of the likely cuts in government spending members’ paychecks. Lawmakers reveals the micro aspects. A 50% reduction in discretionary defense outlays also struck a deal earlier in the year is baked into the provisions of current law, implying that defense operations that temporarily suspended the statwill suffer a sizable setback. Reduced funding for schools would translate utory debt ceiling until May 18. to fewer teachers and cutbacks in a wide range of programs. Federal-govEffectively, Congress has to conernment expenditures related to food inspection, air traffic control, and law tend with three deadlines between enforcement would be pared back. Cuts to border and port security could now and mid-May, and the unceraffect the volume and timing of trade flows. So, we all are likely in for some tainty surrounding them will not level of inconvenience. help economic performance. One Social Security and Medicare programs are not subject to a change, while can hope that the second half of the there will be a 2% reduction in payment to Medicare providers. Essentially, year will be free of budget hoopla, nearly all federal agencies must scale back outlays over the remainder of fiswith only economic fundamentals cal year 2013. driving market movements. n In addition to the sequester, Congress faces a series of other deadlines in the coming weeks. The current “continuing resolution” enabling funding Carl Tannenbaum is senior viceoperations of the federal government expires on March 27. Failure to renew president and chief economist at this authority could result in a temporary shutdown of the federal governNorthern Trust Corp., Chicago. ment. Yet, as Congress deliberates the details of a new resolution, there is He is a member of the ABA Economic room to soften the blow of the sequester. Advisory Committee. 8  |  ABA BANKING JOURNAL  |  March 2013

Table of Contents for the Digital Edition of ABA Banking Journal - March 2013

ABA Banking Journal - March 2013
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
Picture This
Don’t let Trojans infiltrate your customers
Pass the Aspirin
Tech Topics
Working smarter, harder, and right
Mobile Banking: 7 keys for success
Compliance Clinic
Compliance Inbox
ABA At Your Service
First Person

ABA Banking Journal - March 2013

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