“Sequestration would reduce the level of spending authority by $85bn in fiscal year (FY) 2013 and $109bn for subsequent fiscal years through 2021. The actual effect on spending in calendar 2013 would be smaller–around $53bn, or 0.3% of GDP–since reductions in spending authority reduce actual spending with a lag. The reduction in spending would occur fairly quickly; the change would be concentrated in Q2 and particularly Q3 and could weigh on growth by 0.5pp to 1.0pp.”
In other words: payroll tax eliminates some 1.5% of 2013 GDP growth; on the other side the sequester cuts another 1%: that’s a total of 2.5%. So: is the US now almost certainly looking at a recession when all the fiscal components to “growth” are eliminated? And what will the Fed do when it is already easing on “full blast” just to keep US growth barely above 0%?
What we need is an honest measure of GDP. Currently, the figure includes money Washington either printed or borrowed — which is a dishonest measure of growth. The former is as illusory as it is inflationary, and the latter is taken from future growth for our kids.
I’d wager that an honest GDP would show that we never really came out of recession, nearly four years ago.
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