Vladimír Urbánek (Kurzy.cz)
Macroeconomics  |  March 01, 2013 16:26:51

Sequester or from today in the U.S. saves

From today, the U.S. saves. In the summer of 2011 when arguing about the increase in the debt limit, both parties in Congress agree on the direction of fiscal policy will continue to act as an insurance policy and devised the automatic cuts. However, negotiations went nowhere, only to "sequester" as short cuts automatically tells about two months and shifted slightly softened under a tax increase achieved at the end of this year while averting a fiscal cliff.

Politics is but like everywhere in the world. Two months are gone and after several false attempts from both sides at the end left only accusations. Measures that should be a fuse discussion and finding a consensus on the future direction of the federal budget, it became a reality. Instead structured rationalize spending cuts coming area.

Altogether automatic cuts should bring savings of $ 1.1 trillion in the next 10 years. This year "sequester" reduce federal spending by $ 85 billion, including 43 billion going to the cuts in the military, 29 billion for other non-mandatory spending, 10 billion for Medicare and nearly 4 billion in other mandatory spending.Of spending cuts are exempt Social Security program from which they are paid retirement and disability pensions, unemployment benefits and health care within the Medicaid program.

From a macroeconomic point of view it is not a critical step. Cuts range corresponds to roughly 0.5 percent of GDP. Balanced budget in the White House this year left another 5.3 percent of GDP and the debt will continue to rise towards 80 percent of GDP. Slowing economy cuts barely a few tenths of a percent. Even including the impact of "sequester" counts Congressional Budget Office (CBO) this year, with GDP growth of 1.4 percent.

Important decision, however, the White House and Congress are yet to come. In the next five years, although the budget situation will improve and debt-to-GDP ratio to fall slightly, but thereafter the public finances back on track, which is not sustainable. It is possible that this task is here to stay for another president and another Congress.

The entire report can be found in the Annex.

David Marek, Patria Finance

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