Will Politicians Destroy the Recovery with This Policy?
Automatic federal budget cuts known as “sequestration” that President Obama and Congress agreed to in 2011 are set to take effect starting March 1. These cuts, which are intended to reduce the budget deficit, will eliminate $85.3 billion from the 2013 federal budget. They will be implemented between March 1 and September of this year.
Where do the Budget Cuts stand Now?
Although the sequestration law was originally passed with the hope that the threat of impending budget cuts would spark a compromise between Republicans and Democrats, it appears that both sides have reached a negotiating impasse.
Since sequestration is an automatic process, the cuts are supposed to be dispersed equally across all programs and federal agencies. This removes politicians’ discretion in deciding which programs and agencies they want to protect and instead indiscriminately cuts funding across the board…
However, to paraphrase George Orwell, some programs and agencies are more equal than others. Certain crucial defense programs related to the current wars are exempted from these automatic cuts, as are some domestic programs like Social Security and Medicaid.
Still, the Pentagon will shoulder most of the burden with spending cuts of over 7 percent, while domestic programs will face cuts of around 5 percent. In either case, these indiscriminate austerity cuts could have a negative impact on government services and overall economic growth.
Here’s a look at how some top defense stocks have performed over the past 52-weeks in the face of sequestration:
Lockheed Martin (NYSE:LMT)
Northrop Grumman (NYSE:NOC)
General Dynamics (NYSE:GD)