So the President of the U.S. signed the "sequestration" process into action last night. And the world did not end. Some of my associates who are federal employees are unhappy at the dual prospects of a pay reduction and not being able to fully do their jobs.
And many of my teaming partners are gritting their teeth over contracts canceled, not awarded, or just in limbo.
But, at the end of the day, this austerity program may impeded the operations of government, but it isn't the end of everything. Although, as I've pointed out in the past, no country implementing budget cuts has emerged from recession.
President Barack Obama pressed Congress on Saturday to work with him on a compromise to halt a fiscal crisis he said was starting to "inflict pain" on communities across the United States. If left in place without legislative remedy, government agencies will have to hack a total of $85 billion from their budgets between Saturday and Oct. 1, cuts that over time could cause economic harm, slash jobs and curb military readiness. "These cuts are not smart," Obama said in his weekly radio and Internet address. "They will hurt our economy and cost us jobs. And Congress can turn them off at any time - as soon as both sides are willing to compromise." --HuffingtonPost
But austerity can mean prolonged contraction, but, on the up-side, one should remember that an increase in government spending does not add to aggregate demand. Every dollar or euro the government spends must be taken first from individuals or companies. In the U.S., research dollars displace private sector spending or investment. In addition, since individuals are better at spending and investing their own money than elite public servants, every dollar of increased government spending leads to less than a dollar of additional output.
So don't be too down-in-the-dumps: there is a good possibility reduced government spending will free money up for private spending and investment. Maybe.
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