EL-ERIAN: Just As People Were Starting To Relax, The Sequester News Has Taken A Turn For The Worse

Tuesday, April 23, 2013
By Paul Martin

Mohamed El-Erian
Apr. 22, 2013

Just as people were starting to relax – feeling that the warnings had been too alarmist – the “sequester” news took a turn for the worse.

The consequences go beyond confirming that an already sluggish U.S. economy will now face a fiscal drag of ½% of GDP this year (the first year of the sequester), adding to the 1% of GDP drag in the end-of-year “fiscal cliff” deal. They also suggest that we may never get a full handle on the negative effects of Congress’s self-inflicted wound.

The sequester, or the automatic set of blunt spending cuts triggered by Congressional polarization and dysfunction, was all over the news in the first few weeks of the year. Warnings got louder as we got closer to the trigger date. Yet, in the immediate aftermath of the trigger, the vast majority of Americans felt no effects.

Many blamed the press for overhyping the issue. Some even pounced on the “false alarm” as confirmation that budget cuts, no matter how badly designed, could and should be pursued without hesitation. Just a few brave souls warned that it was only a matter of time until the adverse effects would become clearer.

The Rest…HERE

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