Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter

Now that the “sequester” is in effect, horrid budget cuts will befall the US economy and tear it to smithereens. It would be the end of the world as we know it. 750,000 people would suddenly lose their jobs, planes would stop flying, orphanages would shut down, children would go hungry, the Navy would no longer be able to operate its ships, aircraft carriers would be called back, F-35s would be grounded.... Oh wait, didn’t they get grounded for technical reasons? It would be a nightmare for every American man, woman, and child, according to the media.

Fear-mongering that the White House drove to shameless heights. President Obama spoke again and again, using heart-wrenching stories of individuals and groups who’d suffer tremendous hardship. He explained with anecdotal creativity how the US would come to a grinding halt.

All this over nothing more than $85 billion in budget cuts, or rather reductions in planned budget increases this fiscal year. Had Congress decided to keep the 2012 budget level in 2013, there would have been no sequester. But in its infinite wisdom, it increased the budget and then applied the sequester as “budget cuts” to those increases.

For the gargantuan US budget, $85 billion is a rounding error. Since the beginning of the year, the US gross national debt has jumped by $254 billion ($254,559,129,646.20 to be precise) to $16.687 trillion. The result of two months’ worth of deficits.

Over the next seven months, the growth of these ongoing deficits will be slowed by $85 billion, or about €12 billion a month. If they’d been applied to the January-February budget, for example, the deficits for the first two months would still have been $230 billion. A laudable but barely noticeable effort. And the debt would still have grown at an alarming rate.

The winner? The media. The suspense, the deadlines, the Washington theatrics, the sound bites, the human drama.... The day-to-day frenzy drove people to read articles and watch or listen to shows. Advertising revenues were flowing with renewed vigor. That’s the business model of the media. You can’t blame them for the tsunami of hype and fear-mongering. But you can ignore them.

Now that the drama is over and the dire predictions far from reality, a new tune is being played. And President Obama struck the first chord when he let us know that the sequester, despite everything he’d said before, would not be “an apocalypse.”

The media too are dialing back their volume. The fake deadlines, the even more fake serial “fiscal crises,” it all came to an end with a whimper. The political theatrics seem embarrassing, the oratorical hyperbole silly. Instead, we’ve learned over the weekend that most people won’t notice the difference at all. At least not for a while. If ever.

Meanwhile, the Fed—or more precisely the New York Fed—continues to print $85 billion a month in fresh money that it hands to the “primary dealers,” namely 21 of the biggest banks, domestic and foreign, including such luminaries as Goldman Sachs (official list) so that they can buy assets with it, earn bonuses, and drive up asset values. It has created the most gargantuan global credit bubble ever, including the largest junk-bond bubble, a farmland bubble in the US, numerous other bubbles, and, to sort of quote Jim Cramer, a zombie stock-market rally that data has been trying to shoot, but it just won’t die.

The stock market is in la-la land, despite the economy, which is at best so-so. It seems immune to the Washington theatrics or anything else, as long as the Fed pumps out $85 billion a month. Or until enough people think that it might stop doing so in the near future—which hasn’t happened yet.

But for the media, a new day has dawned. To get away from their detailed predictions of an apocalypse, they’re backpedalling furiously. And so is the White House. If the “budget cuts” stick—doubtful over the longer term, given the bipartisan predilection for unbridled spending—we’ll suddenly be able to live with them. That’s the newest message. It changed from one day to the next. What an embarrassing chapter in US fiscal history.

It could be worse, as far as budget deficits are concerned: Michigan took control of Detroit on March 1st by appointing the equivalent of a bankruptcy trustee. Detroit committed municipal suicide through crony capitalism and union feather-bedding; it refused to cut spending and balance its budget. Perhaps Detroit’s downfall prods Congress to get serious about cutting federal spending. Read.... Detroit Gets Sequestered