By Karl Reiner
The $85 billion across-the-board federal spending cuts for the current fiscal year have gone into effect. When the White House and the balky Congress agreed to the sequester cuts in 2011, it was supposed to be a prod to negotiating a better approach to deficit reduction. The consequences of the blunt cut to federal spending were too appalling to consider. The sequester deal was the incentive driving the working out of a better arrangement.
It failed because a factionalized Congress, presiding over a depressingly slow economic recovery, has lost its moorings. The fear and anger that fuels the tea party and anti-government groups has driven the Republicans to forgo governance and opt for simplistic solutions appealing to the far right.
Getting the federal deficit under control should be a medium-term effort. Doing it through sequester is the most damaging way imaginable. Although difficult, deficit reduction is not an impossible task because it has in large part been caused by unfunded wars, tax cuts and temporary stimulus programs. The Congressional Budget Office expects the deficit to drop to $845 billion in 2013. It will be the first time the deficit has fallen below $1 trillion since 2008.
Last year's drought (a record setter) mangled America's heartland. Over 1,000 counties in 26 states were declared disaster areas by the U.S. Department of Agriculture (USDA). As a result of the drought damage, crop insurance payments reached over $14 billion through February 2013.
Crops are bringing higher prices, interest rates are low. Despite the drought's massive effect, commodity markets are booming with corn prices up by around 20%. In February, the USDA projected farm income at $128 billion, the highest in real terms since 1973. According to a Federal Reserve Bank of Chicago report, the prices for farmland are rising, jumping about 16% across the Midwest in 2012. Things are so good that analysts are beginning to worry about a developing bubble in farmland prices.
While attention was focused on the White House and Congress sequester duel, the West and Iran held talks regarding Iran's nuclear program in Kazakhstan during the last week of February. The session went well enough to permit the scheduling of another meeting in Istanbul in April.
In the changing global economy, China surpassed the U.S. as the world's largest merchandise trader in 2012. China's imports and exports of goods amounted to $3.87 trillion, passing America's $3.82 trillion. The data is for merchandise trade only. If services were added to the total, the U.S. would continue to retain the top spot.