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The CBO is out with their analysis of the budget deal and they conclude that the total cuts will amount to $2.1T over the coming 10 years:

“If appropriations in the next 10 years are equal to the caps on discretionary spending and the maximum amount of funding is provided for the program integrity initiatives, CBO estimates that the legislation—apart from the provisions related to the joint select committee—would reduce budget deficits by $917 billion between 2012 and 2021. In addition, legislation originating with the joint select committee, or the automatic reductions in spending that would occur in the absence of such legislation, would reduce deficits by at least $1.2 trillion over the 10-year period. Therefore, the deficit reduction stemming from this legislation would total at least $2.1 trillion over the 2012–2021 period.”

It’s important to note that this is spread out evenly over the course of 10 years though.  So we’re not getting slammed with massive Greek-like austerity immediately.  That’s somewhat positive although we do have to recognize that the fiscal stimulus from the last 2 years continues to fade and there could potentially be more cuts in the coming year.  The bottom line is, we’re not getting any more aid from the government sector.  So, budget deficits will remain large enough to sustain a muddle through environment with high risk of exogenous shocks (Europe, Asia, etc).  As the stimulus wears off it will be like peeling off the layers of an onion slowly but surely to reveal a very rotten core as Main Street remains mired in a balance sheet recession.

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