Beginning to worry about sequestration

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The CBO updated its fiscal outlook yesterday. I have to say that the fact that keeping all the current support for the economy in place only leads to a paltry 1.7 percent growth next year helps explain more deeply the depth of the crisis we are still in – globally as well as nationally. Drum, who provides the modified CBO graphic above, weighs in:

If we extend everything, CBO figures economic growth will clock in at about 1.7% next year — not great, but not catastrophic either. But if everything expires, the country will fall back into recession, with the economy shrinking by 0.5%. It’s vanishingly unlikely that Congress will even attempt to address this before the election. That means we’re due for yet another exciting lame duck session in December.

Greg Ip warns that a series of smaller fiscal drags also threaten the recovery:

Here’s the real threat. Even if the Bush tax cuts are extended and the sequester delayed, a huge amount of fiscal drag remains in place. They include the expiration of the payroll tax cut, the expiration of extended unemployment insurance benefits, imposition of a new 3.8% Medicare investment tax on the wealthy, and the bite to discretionary spending embedded in the Budget Control Act and prior continuing resolutions. ISI Group projects $220 billion of fiscal tightening in 2013, or 1.4% of GDP. JPMorgan, noting that many Recovery Act programmes are rolling off at the same time, puts the hit at a slightly higher $266 billion, or 1.7% of GDP. The IMF reckons fiscal policy will tighten more in America next year than in Spain, Italy or Portugal. Though smaller than the full fiscal cliff, the fiscal clifflet still poses a significant headwind to the economy. If enough other bad stuff is going on, it could push the economy back into recession.

Peter Schorsch is the President of Extensive Enterprises and is the publisher of some of Florida’s most influential new media websites, including SaintPetersBlog.com, FloridaPolitics.com, ContextFlorida.com, and Sunburn, the morning read of what’s hot in Florida politics. SaintPetersBlog has for three years running been ranked by the Washington Post as the best state-based blog in Florida. In addition to his publishing efforts, Peter is a political consultant to several of the state’s largest governmental affairs and public relations firms. Peter lives in St. Petersburg with his wife, Michelle, and their daughter, Ella.