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The Other Sequestration That No One Is Talking About

Tyler Durden's picture




 

From BofAML

The 2011 failure of the Super Committee produced a sequester that reduces budget authority in FY2013 by $85bn; resulting in estimated actual spending cuts of $42bn. What is less commonly known is that in FY2013 there is also a second sequester. The math behind the second sequester is even messier than the Super Committee sequester, but the bottom line is that it adds to the fiscal pain and highlights the complexity of the budgetary process.

You may ask yourself, how did we get here?

This second sequester results from a shift in budget authority from non-defense to defense for the current fiscal year. The shift in budget authority results from the passage of the FY2013 continuing resolution (CR), which provided funding for federal agencies through March 27. In aggregate, the current CR provides the right amount of budget authority ($1.047 trillion) for the year, as stipulated in the Budget Control Act (BCA) – i.e., the Super Committee sequester.

The problem with the CR is that it over-allocates budget authority to defense and under-allocates budget authority to non-defense by roughly $11bn. Once the current CR runs out, the extra $11bn in defense spending will be sequestered.

After the money’s gone

The second sequester has the potential to increase overall fiscal austerity this year. The exact magnitude of the additional spending cuts depends on the extent the Department of Defense (DoD) exceeds the BCA baseline. As a reminder, cutting budget authority does not necessarily translate into one-for-one spending cuts. At the very extreme, if the DoD has already used all $11bn of this additional budget authority, we will see an annualized hit of $19bn, or 0.1% of GDP. On the opposite end of the spectrum, if the Department of Defense did not use any of the extra $11bn, the second sequester would result in no additional austerity.

Putting an exact figure on the actual spending cuts resulting from the second sequester is very difficult. The Bipartisan Policy Center (BPC) finds that defense spending is currently running above its baseline pre-sequester budget cap. They estimate that the second sequester will result in additional austerity of $6bn in FY2013. On an annualized basis, that is a $10bn, or 0.06% of GDP, shock.

Letting the days go by

Unless additional legislation is enacted by March 1, the sequester will begin kicking in. As far as we are aware, there are no ongoing credible negotiations to replace or delay the sequester. As we explain in the Overview, we think it is very likely that the full sequester kicks in on March 1. We expect ominous headlines throughout March as the exact impact of the sequester is recognized. We believe this has the potential to increase market volatility.

Same as it ever was

In our view, the markets are underestimating the looming fiscal shock. The complex nature of federal budgetary accounting makes it difficult to quantify the exact size of the looming fiscal austerity. Including the additional austerity from the second sequester, we continue to expect total fiscal austerity this year of 2.0% to 2.5% of GDP.

 

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Sun, 02/24/2013 - 11:07 | 3271364 Sudden Debt
Sudden Debt's picture

a bid of topic but Italian polls are in and guess who's winning :)
They already call it the ANTI MERKEL vote :)

Love it!

Sun, 02/24/2013 - 11:17 | 3271366 lolmao500
lolmao500's picture

Berlusconi is winning? No way! Awesome if true! The euro needs to die already!

Give us more details..

Sun, 02/24/2013 - 11:40 | 3271383 Daily Bail
Daily Bail's picture

A SEQUESTER EVERY 6 MONTHS

Seriously, how you can you not LOVE the sequester.  We should have one every 6 months for 5 years or however long it takes until the budget is finally fucking balanced.  Let the miserable hacks in Washington figure out the details, but the basics would be the same every 6 months.

Cut or die, punks.

Secondly, before I post this, Santelli gets a bad rap from certain knee-jerk blowhards vexed by his infamous Tea-Party rant against a bailout for homeowners, who don't realize that he's been against EVERY BAILOUT in the last 5 years, including TARP, and the Fed's ongoing stealth bailouts.

This was his best clip from last week.

SANTELLI: 'Republicans Need To Be Like Eisenhower And SLASH Spending For The Military Industrial Complex!'

 

Sun, 02/24/2013 - 11:42 | 3271420 smlbizman
smlbizman's picture

i cant wait for the blshit numbers when this happens...what season would this be that must be adjusted???

Sun, 02/24/2013 - 12:08 | 3271482 Joe Davola
Joe Davola's picture

Oooooh, ominous headlines, wait this sounds familiar.

Sun, 02/24/2013 - 15:38 | 3271974 DoChenRollingBearing
DoChenRollingBearing's picture

@ Daily Bail

+ 1

At this point "whatever it takes" to cut spending is OK with me.  "Automatic brain-dead" cuts?  Yes, OK.  Even if that means going after Pentagon spending.  Cut all spending now.  There is VERY LITTLE that our .gov spends on that is worthwhile.

Sun, 02/24/2013 - 11:08 | 3271365 lolmao500
lolmao500's picture

And it's NOT EVEN CLOSE to what is REALLY needed in terms of austerity...

Sun, 02/24/2013 - 11:30 | 3271399 Bobbyrib
Bobbyrib's picture

Agreed. Cut more. The MSM is all over the Sequestration today and how horrible it will be for everyone. I guess they expect everyone to panic and contact their representatives to get a last minute deal in place. Hopefully, that won't happen. If they panic over cutting 2% of the budget, I would think one would have to question how solid this economic "recovery" is. 

Sun, 02/24/2013 - 11:35 | 3271411 lolmao500
lolmao500's picture

The MSM shall be quite hilarious to watch when the bond market says FARK YOU and the government has to cut 50%+ of the budget overnight...

Sun, 02/24/2013 - 11:45 | 3271425 LawsofPhysics
LawsofPhysics's picture

Would love to see that happen, but doubt it.  The Fed is buying more the 75% of issuance.  There is no bond market.  Are you saying that the banking cartel known as the Federal Reserve is going to slit their own throat?  I see them buying gold and letting the dollar die.  Don't worry, they have another currency for you.  Stop arguing over paper, this is about power and control, period.

Sun, 02/24/2013 - 12:58 | 3271607 lasvegaspersona
lasvegaspersona's picture

Laws

I agree but I do not see them able to buy gold....they will have to be content with what they have

any large purchases would cause the POG to rocket bringing to end sooner..

Sun, 02/24/2013 - 11:58 | 3271455 Daily Bail
Daily Bail's picture

Exactly.

In 3 years the debt will be $20 trillion.

Slap a 5% financing cost (assuming rates are higher in 3 years) and you get $1 trillion in interest annually.

We only collect $2.5 trillion now.

Interest on the debt will be approximately 40% of total tax receipts.

That's when the real fun will begin.

Sun, 02/24/2013 - 15:38 | 3271978 DoChenRollingBearing
DoChenRollingBearing's picture

+++++

On fire today, Bail!

Sun, 02/24/2013 - 12:00 | 3271428 Daily Bail
Daily Bail's picture

THE U.S. BORROWS $3 MILLION PER MINUTE

By the way, I'm still waiting for some Keynesian punk to point out the supposed 'savage austerity' after 5 straight years of trillion-dollar deficits.

We borrow $50,000 dollars EVERY second, you goddamned Krugman Keynesian fucktards.

We wouldn't know austerity if it bit us on the nut sack.

 

Sun, 02/24/2013 - 12:14 | 3271491 falak pema
falak pema's picture

thats...1.5 Trillion a year...So in 5 years that will make the debt : 24 T; aka 140- 150 % GDP; and interest payments will be around...750 B /year. 

If the FED devalues the $ by 30% in the meantime, its still worse than current $ terms debt and int PAyments. 

Where is the trade off, apart from growth and ...will there be growth in next 5 years with such debt and int deficit?

I think not. Unless US govt reduces expenditures by 1.5 t a year in same time frame to generate budget surpluses and thus reduce debt.

No political party can manage that. Not today. 

Stymied.

Sun, 02/24/2013 - 12:55 | 3271600 lasvegaspersona
lasvegaspersona's picture

Obama cnnot allow ANY decrease in spending...we already have one Q of negative growth....one more quarter and we get "THE OBAMA RECERRION"  tada

that will not be allowed and he will fight for every penney using every excuse...

Sun, 02/24/2013 - 13:24 | 3271681 Bendromeda Strain
Bendromeda Strain's picture

We are too far gone for austerity. Denninger, Mish, et al keep saying "This is it, no more!" but they keep moving their own goalposts with each new printed round of repression. The hit is already too much to bear, and TPTB know it. Strap in, buckle up - it's time for Sheriff Joe Biden's "Gird Your Loins Show".

Sun, 02/24/2013 - 11:11 | 3271367 francis_sawyer
francis_sawyer's picture

I didn't mean to get high...

~~~

http://www.youtube.com/watch?v=PIJNQLI6KwY

Sun, 02/24/2013 - 13:27 | 3271695 Bendromeda Strain
Sun, 02/24/2013 - 16:31 | 3272110 francis_sawyer
francis_sawyer's picture

Come on folks ~ Sing along!

~~~

I might find myself

posing in a suit that's black

& I might find myself

peeking at topless tribal girls

& I might find myself eating a bottle of Ambien sleeping pills

& I might find myself hallucinating

with an invisible snake

& I might ask myself, well

How did I get here?

I DIDN'T MEAN TO GET HIGH

[CAN'T KEEP MY BALANCE FALLING DOWN]

I'M AN EXTREMELY WHITE GUY

[WHITE PEOPLE DANCING ALL AROUND]

TIED DOWN WITH RUBBERBANDS

[I'M NOT BRACING WITH MY ARMS]

I'M THE GREATEST MIME

[THIS MOVE'S SPERM SWIMMING AROUND]

& I may ask myself

Who keeps punching me?

& I may ask myself

Where is that invisible boxing midget?

& when I catch that elf

I'm chopping him up with a knife

when police catch myself

I'm probably looking at life...

EPILEPSY GUY

[IS NOW LAYING ON THE GROUND]

I ATE A MUSHROOM PIE

[HOLY SHIT I'M TRIPPIN BALLS RIGHT NOW]

TOOK A FEW AMBIEN

[NOW MY MIND IS GONE]

I LIKE GETTING HIGH

CHEESY WATER EFFECTS BACKGROUND

Sun, 02/24/2013 - 11:10 | 3271371 insanelysane
insanelysane's picture

Government spending is insignificant in a true democracy.  </implied>

Sun, 02/24/2013 - 11:17 | 3271380 bugs_
bugs_'s picture

Oh what a tangled web we weave, when first we practice to deceive.

Sun, 02/24/2013 - 12:01 | 3271465 Dan The Man
Dan The Man's picture

Agreed...But these A-Holes have been "practicing to deceive" for so long, they are quite good at it. Not so tangled anymore.

Sun, 02/24/2013 - 11:20 | 3271381 JustObserving
JustObserving's picture

'They estimate that the second sequester will result in additional austerity of $6bn in FY2013"

As if it matters when the Fed will be printing $1020 billion this year.  $6 billion is smaller than a rounding error. It is what the Fed prints every 2 days.

Sun, 02/24/2013 - 11:35 | 3271400 LawsofPhysics
LawsofPhysics's picture

Exactly, monetizing 85 billion per month, the fucking interest on current debt alone is still around 500 billion.  End the fed, end all the fiat, restore the fucking rule of laws and contracts, protect private property and execute the fucking perps.  Nothing changes until then or broken supply chains take the world back into a real war.  Some things never change.

Sun, 02/24/2013 - 11:31 | 3271403 Bad Attitude
Bad Attitude's picture

I just want to know why entitlements/transfer payments are untouchable.

Sun, 02/24/2013 - 11:56 | 3271448 rehypothecator
rehypothecator's picture

Because entitlement and transfer payment recipients vote, and those who vote for a living are starting to outnumber those who work for a living. 

Sun, 02/24/2013 - 12:31 | 3271538 GMadScientist
GMadScientist's picture

Because old people bother to vote.

Sun, 02/24/2013 - 13:26 | 3271686 blindfaith
blindfaith's picture

Because we have been forced to pay into the system for the last 40 years...in my case 15.3% of my income since I am self employed.  You are Another troll on ZH who doesn't mind seeing big taxpayer bucks go to corporations and banks but has been either brain washed or paid to attack Social Security with a Fox generated dirty word.

Where were you when when the bankers got their BONUSes because they claimed they had a legal 'contract' even though the damn banks got bailed out by me to pay them? 

Social Security is a legal contract that was made with the citizens.  So take your bad attitude and stick it in your tea cup.

Sun, 02/24/2013 - 13:44 | 3271753 NemoDeNovo
NemoDeNovo's picture

I have been doing the same as you have but albeit for only 26 years.

 

But a problem I have with your post is this, in this whole "Social Contract" clap trap.  How can someone be BORN in to a contract?  Isn't that Slavery?  For any contract to be valid their needs to be FULL DISCLOSURE now doesn't there?  I myself have never signed said Social Contract, so therefore should I still be liable for it?  This is the inherant proble in 'merica today too many people trying to FORCE their will upon another through the whole "Force of Law" BULLSHIT.  Maybe you bought in to the whole SS fantasy, some of us did not and have taken alternative measures to prepare for the end of our lives.  I hold no illusion SS will be there for me or my kids for that matter and the "Tax" I have to pay is just a cost of doing business IMHO, but YMMV.

 

Oh and before you give some Snarky response about Tea cups or bags, I am an Independant who fully supports the NAP as a much more sane way to run my life, so.......

Put that in your pipe and smoke it, and take you apparent Collective attitude and run it somewhere else hippy.

Sun, 02/24/2013 - 15:35 | 3271973 Nick Jihad
Nick Jihad's picture

You speak for me, as well.

 

Sun, 02/24/2013 - 14:34 | 3271850 Bendromeda Strain
Bendromeda Strain's picture

Social Security is a legal contract that was made with the citizens.

Bzzzt - wrong. It was an inflicted program sold to the citizens. It is unsustainable, any honest person knows it, I am approaching eligibility and was warned it was bullshit back in the 70's, so get off your high horse. If you aren't planning to sustain yourself, then you can eat and burn your devalued "contract" dollars

Sun, 02/24/2013 - 15:25 | 3271949 Bad Attitude
Bad Attitude's picture

"You are Another troll on ZH... paid to attack Social Security... Fox... bankers... tea..."

Wow, so many politically charged buzz words! You need to stop watching MSNBC and drinking so much of Dear Leader's KoolAid - it's not good for your health.

There is a whole lot more to entitlements/transfer payments than just Social Security. I've been paying into "the system" the past 40 years, too. I just happen to actually read what is presented here on ZH, so I know the system is broken. The money is gone. Social Security is a giant Ponzi scheme, and a lot of people aren't going to get their money back. In bankruptcy, contracts get broken, debts discharged, and people don't get what they expected.

Mon, 02/25/2013 - 16:36 | 3274946 mrdenis
mrdenis's picture

Because it's a return OF capital not a return on capital ........

Sun, 02/24/2013 - 11:33 | 3271406 10mm
10mm's picture

That's too Ron Paulish,not gonna happen.

Sun, 02/24/2013 - 11:47 | 3271431 nmewn
nmewn's picture

"The 2011 failure of the Super Committee produced a sequester that reduces budget authority in FY2013 by $85bn; resulting in estimated actual spending cuts of $42bn."

42bn? Really?...in the rate of the federal budgets growth?...lol.

Let the rending of clothes & gnashing of teeth begin in earnest.

Sun, 02/24/2013 - 11:52 | 3271440 I need more cowbell
I need more cowbell's picture

Not to worry. Obummer is ready to announce the Super Duper Really We Mean It This Time Committee, whose goal it is to slash slash slash. There will be blood, lots of blood, but it has to be done. Goal: less than $300 trillion in total unfunded liabilities by 2020. Hard hard choices to be made.

Sun, 02/24/2013 - 11:52 | 3271441 monopoly
monopoly's picture

So, we need to cut 1 Trillion each year in spending to even get close to reducing our debt, and we are all getting our panties in a Wad because the country is doomed with 85 billion in cuts?

We are so screwed. Amazing.

Sun, 02/24/2013 - 11:59 | 3271457 Dan The Man
Dan The Man's picture

Choking on the sparrow with the elephant next

Sun, 02/24/2013 - 13:36 | 3271723 blindfaith
blindfaith's picture

Cut Congressional ENTITLEMENTS and you can balance the budget in a week.

Ever see a congressmen who went in poor and came out poor?

And, while you at it cut these lavish saleries and golden parachutes the government muckie mucks get...like 100% medical coverage for life and their families too....that IS entitlement isn't it?

Sun, 02/24/2013 - 11:58 | 3271452 10mm
10mm's picture

Got ammo.

Sun, 02/24/2013 - 12:00 | 3271463 carlsbadip
carlsbadip's picture

The reduction of spending by 5% will cause the end of times. What nonsense. They are not reducing travel, conference attending and other such nonsense.

Sun, 02/24/2013 - 12:13 | 3271497 Seb
Seb's picture

What is this "Sequester"? Some kind of Festivus?

Sun, 02/24/2013 - 12:33 | 3271546 GMadScientist
GMadScientist's picture

It's a cross between Sequence and Uncle Fester.

Sun, 02/24/2013 - 12:36 | 3271555 trillion_dollar...
trillion_dollar_deficit's picture

All this would have been avoided if the Dems in the Senate would just pass a budget. But, because they dont want to alter the baseline scrnario in budget projections, theyve refused to do so for the last 4 years. And this is supposed to be the most transparent administration ever. Like EVA.

Sun, 02/24/2013 - 14:29 | 3271835 RockyRacoon
RockyRacoon's picture

You're looking at one tree when the entire forest is the problem.

Get a wider view.

Heard Ray Lahood this morning say that "SURE!" he can cut a billion from his department, but he'd like to be able to direct the cuts where they are needed, not across the board.  My question for Ray:  If you could cut a billion why haven't you already done it!?

http://fastlane.dot.gov/2013/02/on-sequestration-the-federal-aviation-ad...

Sun, 02/24/2013 - 12:44 | 3271573 lasvegaspersona
lasvegaspersona's picture

now I have that song in my head

water flowing under ground

Sun, 02/24/2013 - 13:19 | 3271658 Crash Overide
Crash Overide's picture

sequester = manufactured crisis to get the sheep worked up again? Wern't we just falling off a fiscal cliff, oh wait they eased us down right? Nothing is news to me when it's all fraud. Numb, next...

Sun, 02/24/2013 - 13:59 | 3271779 torabora
torabora's picture

Spending borrowed money is just like injecting borrowed heroin.

Sun, 02/24/2013 - 14:25 | 3271831 malek
malek's picture

Unfortunately this Kabuki theater is not happening only "Once in a Lifetime"...

Sun, 02/24/2013 - 15:18 | 3271936 smart girl
smart girl's picture

In retrospect the whole fiscal cliff scare was because the Federal Reserve charter was up in January and had to be voted in with no discussion.

Sun, 02/24/2013 - 18:36 | 3272369 GMadScientist
GMadScientist's picture

If you're so "smart", why don't you know about the Pepper-McFadden bill?

From 12 USC 341:

Upon the filing of the organization certificate with the Comptroller of the Currency a Federal reserve bank shall become a body corporate and as such, and in the name designated in such organization certificate, shall have power—

First. To adopt and use a corporate seal.

 Second. To have succession after February 25, 1927, until dissolved by Act of Congress or until forfeiture of franchise for violation of law.

Sun, 02/24/2013 - 15:47 | 3271999 shovelhead
shovelhead's picture

Thank God,

Those cuts won't affect the Abrams tank. We need more of those to keep the Communist Red Hoard from sweeping across Europe.

 

Wait a minute...

Sun, 02/24/2013 - 18:26 | 3272344 orez65
orez65's picture

The last time that Congress cut the budget spending went up!

Congress is not going to cut any spending because the majority of the voters want the entitlements to keep coming and be increased.

"... money for nothing and chicks for free ..."

Sun, 02/24/2013 - 19:12 | 3272441 mirac
mirac's picture

How come the Talking Heads aren't talking about this?  This ain't no party, this ain't no disco, this ain't no foolin' around...

Sun, 02/24/2013 - 19:57 | 3272545 StychoKiller
StychoKiller's picture

"The sound of gunfire,

off in the distance, I'm getting used to it now..."

Sun, 02/24/2013 - 22:27 | 3272854 WmMcK
WmMcK's picture

I've changed my hairstyle so many times now, I don't know what I look like.

Sun, 02/24/2013 - 19:44 | 3272515 egoist
egoist's picture
Sun, 02/24/2013 - 23:06 | 3272932 SKY85hawk
SKY85hawk's picture

 

You all are losing sight of the real problem!

 

The corporation, UNITED STATES OF AMERICA, has exempted itself from all GAAP rules of fiscal management.  Proper accruals and timely reporting of the true condition of our country's finances would have woken people up many years ago.

America's politicians are just like Europe's

"We all know what to do, we just don't know how to get re-elected after we have done it."
 
                  -Jean-Claude Junker

Please remember that Obama signed the

Budget Control Act of 2011 into law.

The100 billion dollar cut in DISCRETIONARY spending will not affect the social safety Net.
It will affect lots of 'non-essential' govt employees, Clinton said 98% are non-ssential.
I suspect all these MSM sound bites are coming from people that don't want to suffer like the rest of us have.

If Barry was true to his campaign promises, he would have vetoed the expiration of Bush tax cuts for the NON-wealthy.

Many of America’s problems have been caused by the HOUSE & Senate.

 

 

-          Spending FICA in General Fund  instead of saving for future retirees;

-          Revoking Glass-Stegal & providing NO Controls for Bank Examiners to report on;

-          Bailing out big banks from thier BAD Investments;

-          Manipulation of Stock Market by POMO;

-          Allowing White House to NOT prosecute Mortgage Fraud, etc;

-          Allowing President to start Foreign wars without Congressional Orders;

-          Doing personal business, Insider Trading;

-          Allowing Free market activities that destroy level playing ground.  HFT and Derivatives with no security.  Refusing the require a clearing house to enforce existing rules on Derivatives;

-          Always changing the rules, Not enforcing existing laws;

-Buying worthless MBS's.

 

Sun, 02/24/2013 - 21:46 | 3272765 miker
miker's picture

Everyone rails against Obummer.  Granted, he deserves some.  But what about Bush and Chenny?  Remember Chenny saying deficits don't matter?  And he's been out and about trying to salvage his pitiful legacy.  Bush of course has been dead quiet.  I wonder if he's even smart enough to know how much he fucked up the US economy?

Sun, 02/24/2013 - 22:20 | 3272840 orez65
orez65's picture

It's not Bush nor Chenny it is John Maynard Keynes.

Keynesians, like Obama, are economic alchemists. They think that they can turn paper into money.

"... money for nothing and chicks for free ..."

Tue, 02/26/2013 - 17:57 | 3279405 dadichris
dadichris's picture

i bet even with this 2% cut in GDP the published economic data will still somehow show overall "growth" - seasonally adjusted or whatever

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