President Obama just spoke on TV on the "sequestration" issue, which begins to take effect today. Government leaders have had two years to come up with a different plan and haven't. I can't assume that they are going to do so (let alone all agree on it) in a "couple of weeks or months," as Obama is hoping. Republicans and Democrats seem to be deeply divided and are not unified as a "fiscal team."
As a trader, all I can do is assume that it is proceeding, as laid out, and view how the markets accept it and react to any consequences, which may not be as onerous as Obama and Bernanke would have us believe. While they may produce a small effect on overall economic data over the ensuing months/years, I doubt whether they will account for a significant portion of it, inasmuch as it's my understanding that the implementation of budget cuts will take place in stages and over a number of years. Any economic data that arises over the rest of this year will likely be reflective of the overall domestic and global economic conditions, as it normally would. Additionally, tax hikes that were agreed to earlier this year will, no doubt, generate additional income into government coffers and offset some of the budget cuts.
In the meantime, I'm sure everyone is aware of the ever-expanding National Debt and would agree that the smart thing to do would be to start making attempts sooner rather than later to try and bring it under some semblance of control. Mr. Bernanke can't continue to support a false economy ad infinitum, while giving politicians a free ride to sit on their hands and do nothing. Otherwise, one day, borrowing costs will hit the roof, with nothing to back them up, and everyone will wonder what happened...no one will take the blame...the U.S. will then be answerable to non-Fed debt-holders (the Fed and other government agencies hold 21% of the National Debt, whereas foreign governments and investors hold 48%).
The following excerpt from About.com.US Economy shows who owns the foreign holdings portion of the public debt...you can read the entire article at this link.
UPDATE article from Reuters: President Obama has now signed the "sequestration" order that starts putting into effect the $85 billion in automatic spending cuts.
