March 1 spending cuts could endanger real-estate and defense sectors and boost unemployment rate
The U.S. dodged a bullet with the last-minute fiscal-cliff deal in January, right? Not so fast. A quick survey of some recent news items reveals that the March 1 sequestration deadline could wreak havoc on the economy across a variety of sectors, and that's just one why investors should stay defensive with a gold allocation in their portfolios. And read on: The debt-ceiling fight -- and all the uncertainties associated with it -- will be back at the economic forefront by May:
John Nyaradi of MarketWatch writes: "Investors and politicians are now conditioned to expect a rabbit out of the hat from either 'kicking the can' down the road yet again or from the Federal Reserve stepping in to save the day. Indeed, the hoped for rabbit might appear, however, if the bunny is a no-show, on March 1 the sequestration time bomb will explode.
"Federal spending will be slashed by $85 billion between now and Sept. 30 when our government's fiscal year ends. From Oct. 1 of this year until Sept. 30, 2021 there will be annual cuts of $109 billion. The $85 billion in cuts to this year's budget will kick in during the second and third quarters of the calendar year, bringing great havoc over the remaining months of 2013. ...
"For investors, the outlook is equally troublesome. Already, the elimination of the payroll tax holiday is forecast to reduce GDP by 1.5% in 2013. The sequester is expected to take away another percentage point of GDP growth. With a 2.5% loss in GDP growth, we may very well find ourselves in another recession."
U.S. Secretary of Housing and Urban Development Shaun Donovan told a Senate panel last week that massive government budget cuts set to go into effect March 1 would be "deeply destructive" to all aspects of the housing market, while the Pentagon notified Congress on Wednesday it will be furloughing its civilian workforce of 800,000 employees if sequestration goes into effect March 1.
It's not just the sequester, Henry Blodget at Yahoo! Finance writes: "Nor is the sequester the only economic hurdle on the horizon. At the end of March, the 'continuing resolution' that is funding federal government spending will run out. After that date, the federal government will have to shut down unless or until another continuing resolution (or budget) is passed. This creates the possibility that the government will endure a 1995 scenario in which big agencies just close their doors until Congress finally does what it was elected to do. And then, in May, unless Congress has passed an agreement to delay it, the debt ceiling will return. The debt ceiling, you will recall, is what almost caused the country to default on its obligations back in the summer of 2011 and then again early this year. Our government is using our debt ceiling as a poker chip, and although the Republicans caved a couple of months ago, there's always a risk that they'll decide to hijack the country again.
The bottom line is there are three ways our government can screw up our economy in the next three months. So don't relax just yet."