Editor’s note: In this special report, Microwave Journal looks at the recent
economic and political events that led to the budget cutting program known
as sequestration, how the cuts are implemented with regard to defense
spending, the projected and realized impact on the economic fortunes of
defense contractors six months into sequestration and how forward-thinking
contractors are adjusting their business plans to succeed in a shifting
landscape of tightening government budgets.
It was five years ago this fall that the finan- cial crisis responsible for the great reces- sion set off a chain reaction of Federal Reserve monetary actions and government stimulus programs which, along with plummeting tax
revenues, led to unprecedented U.S. budget
deficits, alarm among deficit-conscious fiscal
conservatives and the birth of a political movement known as the Tea Party. In the 2011 fight
over raising the debt ceiling − the amount the
government can borrow in order to meet its
existing fiscal obligations − Tea Party activists
emboldened by their wins in the 2010 congressional elections forced the Republican majority in the House to reject a compromise with
Democrats to raise the debt ceiling unless acceptable cuts in spending could be met.
At the time, the imminent failure to raise
the borrowing limit threatened to shut down
the government and would have resulted in
a default of its fiscal obligations, presumably
creating new panic among financial markets as
the world’s largest debtor stopped making pay-
ments on existing loans. Despite negotiations
between the White House and the congressio-
nal leadership to impose deep targeted cuts to
the federal budget’s largest items (entitlements
and defense spending), individual members of
Congress, fearing a backlash from their constit-
uents and the resulting political fallout, could
not muster up the will to accept draconian cuts
to specific programs.
As a result of the impasse, the credit rating
agency Moodys downgraded the U.S. Government credit rating from AAA to AA, citing increased lending risk due to the lack of political
leadership in dealing with the pending crisis.
The rating downgrade conceptually would
make it more expensive for the government to
borrow money. In actuality, investors continued to pour money into U.S. bonds, a sign of
how the global economy remained at considerable risk of falling back into recession or worse.
To resolve the immediate crisis, lawmakers
needed to devise an acceptable plan that would
satisfy a highly divided and partisan Congress.
In general, Democrats would fiercely protect
entitlement programs, Republicans would do
the same for defense programs and the Tea
Party caucus would not compromise on reduc-
Microwave Journal Editor