Obama gives the go-ahead to $85 bn austerity cuts‏

2^nd March 2013

Patrick Corby

Patrick Corby

2 March 2013

US President Barack Obama has signed a contract that confirmed the order to cut $85 billion from government spending over the next seven months, with a total of $1.2 trillion over the next nine years. 

The order was released last night by The White House in order to avoid US default officially trim the budget on the deadline set yesterday. 

As Barack Obama failed to convince the Republican Congress to re-adjust the budget cuts with tax increases, his hand was forced to implement the sweeping legislation. 

The order, outlined in a 35-page Office of Management and Budget (OMB) document, overhauls masses of agencies and programs in the US state in a process called sequestration. 

There will now be a movement in the US state to slim the government, decreasing overtime and pay, reducing finance to state programs and reducing contracts made between the public and private sector, giving the private sector more of an initiative to wean itself off the drip of government subsidies. 

The US economy is now facing both results of the fiscal cliff deal which yielded $620 billion over ten years, and the sequestration deal of $85 billion over the next seven months. In total, spending cuts now amount to $1.2 trillion of US government spending.

“While not everyone will feel the pain of these cuts right away, the pain will be real,” said Obama, adding that “many middle-class families will have their lives disrupted in a significant way”.

Although hard, in some ways the re-adjustment is necessary. Before the financial crisis, US households were spending 140% of their annual disposable income and living beyond reasonable means through government programs and debt. 

The housing crash, the result of a rapid increase in subsided home ownership to 69% of the US population, is now starting to be dealt with in a reasonable manner, although the political tensions still hold strong.

These cuts include 13% of defense and 9% of non-defense related programs, including a 2% cut in Medicare. The National Aeronautics and Space Administration will also be cut, by 5% according to the OMB.

The cuts will become more illuminated as the weeks go by and those involved are informed. Thus far, investors have indicated they are not concerned over the cuts after the gains seen in the Standard & Poor’s 500 stock market index and throughout the manufacturing sector.

Patrick Corby