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Honest Charlie Brown, this time Lucy swears she won’t move the football!

Sigma Investment Counselors

February 15, 2013

If I let politics get to me, my blood would be in a constant state of boil. However, the latest antics in Washington are once again beyond the pale. Rather than take any remotely serious steps towards solving the grave budget issues we face as a country, it appears the Administration’s strategy is a campaign to scare the American Public. Janet Napolitano, Homeland Security Secretary, is one of several administration officials holding press conferences to explain the truly dire consequences of the sequestration plan her boss, President Obama, designed and put forth just a few months ago. Secretary Napolitano outlined, in graphic detail, how the sequestration cuts will significantly increase wait times at airport security, especially at the nation’s largest international airports. In turn, international travelers will experience lengthy delays, perhaps as much as 40+% increases in wait times. Really, a 10% cost reduction in the homeland security department budget will result in a 40% increase in wait time at the airport?! And then there is the cleanup money just approved for Hurricane Sandy, which will now be cut by $900 million. Hmmm – As I was taught long ago, good managements are judicious in their budget cuts during difficult times; bad managements just drop the hatchet across the board.

I know I am dreaming, but it would sure be nice if just this once the American public stood up and said enough is enough. As Bob pointed out in his blog the other day, given all the waste in the system a 10% cut in federal spending should be a no-brainer. Instead, the administration is out there with a scare campaign while Senate Majority Leader Harry Reid has proposed that the President’s sequestration solution be tabled. Then, he suggests Congress extend the sequestration deadline ten months while this time they really get serious and figure it out by having a deal that includes an equal amount of budget cuts and revenue increases. The White House has apparently dumped their sequestration strategy (of which they were so proud) and instead endorsed Senator Reid’s new plan. The activities are very fluid and other plans to stop the sequestration are developing. Some Democrats want an 80/20 split with tax increases making up the bulk of the package. Senator Barbara Boxer thinks sequestration can be postponed for a year without any pain to the economy, if they could just agree to close those darn tax loopholes. The Republicans are not free of sin, but how is it that the Senate Democrats find so much wrong with the sequestration solution to which they just agreed? This is like watching Lucy holding the football for the umpteenth time, promising Charlie Brown she won’t move it before he kicks it.

Part of the equity markets’ run has been due to the idea that sequestration provides an automatic program to begin addressing our nation’s budget woes. A ten-month or one-year “extension” is not likely to be greeted well by the markets, even if it means wait times at airport security won’t go up by 40%.

All comments or question are welcome.

Denise Farkas, CFA

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