Political Algebra

The sequester officially takes effect tomorrow and there has been almost zero negotiations between the White House and Republican leaders over avoiding the cuts. Instead, both sides have spent most of their energy blaming the other side. The media has done an excellent job covering this aspect of the sequester, but it has ignored another major part of it: market reaction.

Remember, the sequester was enacted in the summer of 2011 when Republicans took the debt ceiling hostage and we almost defaulted on our debts. In the immediate aftermath of the deal, investors were happy that the U.S. Congress had avoided creating an artificial economic crisis. However, part of that optimism stemmed from the sequester. If the Super Committee failed (as it eventually did), then Congress would have to find a way to either replace the sequester or accept the sledge-hammer cuts. For a while now, a number of

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