Thursday, 16 August 2012

The Sequestration Episode

Some smart folks, associated with the George Mason University….sat down and looked at the looming sequestration episode to occur in January and its impact on the DC area.

For those who weren’t aware….sequestration was this default fix-all, cure-all, screw-all, recession-all solution that both parties invented. The curious end to sequestration involves the District of Columbia that folks haven’t thought much of.

DC doesn’t have any real industry or business operations. The US government is what makes jobs and growth in DC…..the rest simply survives off the cash flow, from coffee shops to the BMW dealerships in the area.

Well….according to the smart guys, if sequestration goes through…the effect on DC is simple. There would be looking at a loss of 65k federal jobs in the national capital area, and another 96k contractor jobs (these are the type that pay $70k or more per year).

The numbers presented via Stephen Fuller (the director of the Center for Analysis) (compliments of WTOP)……are $50 billion regional dollars lost. So you can take an area the size of Atlanta, and discuss a $50 billion loss and 170k unemployed folks being staged all within a short period of time. Then, you start to watch folks get real nervous.

In DC… far, nothing much except a general feeling that it’d best not happen. If you went into Atlanta and just said that 150k folks would be laid off in the upcoming January….things would be fairly hostile. The same would be true if you went into San Francisco and just said 100k folks who make over $50k a year…..wouldn’t be working in the new year.

My “ripple” assumption? I’d be taking a guess that 100k people….unassociated with the government or contracting…..would likely be temporarily let go or just plain terminated…on top of the 170k, so it’s really closer to 270k unemployed folks in DC.

The local airport? You can figure at least fifteen fewer flights a day from Ronald Reagan International, and probably the same number from Dulles. The local subway commuter crowd? I’d be guessing they could run ten percent fewer trains and buses. The coffee shops in the region? I’d be guessing at least forty percent of them could completely shut down. You can figure that pizza delivery, restaurant sales, and pub operations would all kinda feel financial pains….with some surviving and some dissolving by the summer of 2013.

Then you get into a housing crisis… least a thousand homes bound to flip over to the banks by October of 2013, and another three thousand by the summer of 2014. Folks would use their savings to keep some hope alive, but if the jobs didn’t come back….DC would be a dead zone for future employment. You’d be better off to just give up and move off to Dallas or St. Louis.

Sequestration was supposed to be this huge threat to force everyone to the table and find a budget answer. In the end, everyone from both parties saw it as a political tactic….thinking the other folks would give in and find a solution. They never did.

My humble guess? As warning notices go out in early November, the election will occur. The election results don’t really matter. I’d hope that the dimwits can figure a suspension to this deal and postpone the mess for 100 days….putting this off in March for a full solution. If they don’t do a decision by then? Well….forget the local Christmas purchasing power in DC for Thanksgiving week, and prepare for a massive recession. It’d be best to move stocks into bonds by this point and settle down for a long dry spell….until the next four-year election.

The worst of the scenario? A bunch of Congressmen and Senators would be standing there in January, with folks walking out the front door and still arguing over who had the best plan. They’d all probably jump up and offer grants to study the effect of unemployment in the national capital region, and some university professor would be guaranteed a job for two or three years while talking to 270k unemployed folks.

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