ON TUESDAY, Moody's an-
"Sequestration" is the big word for an even bigger problem. It refers to mandatory cuts in government programs across the board--$1.2 trillion worth of them--which, along with automatic tax hikes, are due to take place Jan. 2 if the powers that be in Washington don't agree on a solution for the nation's ballooning debt. Should sequestration occur, experts say the United States will go into a deep recession in 2013 and official unemployment will rise well beyond the current 8.1 percent.
How did we get here? In August of 2011, as the country approached the legal debt ceiling, negotiations between the White House and congressional leaders on raising the ceiling broke down. Faced with a first-in-U.S.-history default on our debt, yet wedded to their own positions, Republicans and Democrats on the Hill worked out a deal without the White House: They'd establish a bipartisan "supercommittee" that would agree on some combination of tax hikes and program cuts--or else the mandatory cuts and tax hikes would take place.
The supercommittee failed, and here we are. To complicate matters, it's now apparent the debt ceiling will need to be raised again and before the end of the year. Expect another apocalypse-class political fight. The White House, which by law was supposed to present an outline of how sequestration would be implemented by last Friday, failed to comply. The administration says it'll have the information next week, just in case you were planning to execute a citizen's arrest.
Meanwhile, the nation approaches Sept. 30, the end of fiscal 2012. For the fourth time in a row, the annual deficit will be above $1 trillion. The total U.S. debt just surpassed $16 trillion. For the third year in a row, the U.S. Senate has failed to pass a budget. Senators unanimously rejected President Obama's $3.8 trillion spending plan in May and also voted down several GOP alternatives. Instead, a "continuing resolution" will fund the government until March 2013.
Should America fall over the fiscal cliff, the Bush-era tax cuts will expire, federal jobless benefits will be trimmed, taxes associated with Obamacare will go into effect, the Defense Department will absorb $500 billion in cuts (and domestic programs an equal amount), Social Security payroll-tax cuts will be rolled back, and the Alternative Minimum Tax levels will revert to where they were in 2000. The good news is, the deficit will go down. The bad news is, it may have company on its descent.
The world's largest economy teetering on the edge of a fiscal cliff is not a pretty picture, especially given the volatility of the global economy. The problem won't be fixed before the election. Let's hope it will be solved directly after Nov. 6.