Sequestration – Fourth Austerity Shoe Drops

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REAL NEWS NETWORK — “Welcome back to the Real News Network. I’m Paul Jay in Baltimore. And welcome to this week’s edition of The Bill Black Financial and Fraud Report. [Professor] Black now joins us from Kansas City, Missouri. Bill’s an Associate Professor of Economics & Law at the University of Missouri-Kansas City. He’s a white-collar criminologist, a former financial regulator. He is the author of the book, The Best Way to Rob a Bank Is to Own One.

Paul Jay:  “Thanks for joining us, Bill.”

Professor Bill Black:  “Thank you.”

Paul Jay (c. 0:33):  “So, the sequestration cuts and drama, what do you make of it?”

Professor Bill Black:  “So, both parties have conspired to bring us disaster. In this case, sequester is the fourth shoe to drop in austerity. And, collectively, this has strangled the recovery and may even put the U.S. economy back into recession.

“So, the first major act was in mid-2011 when they reached this budget deal, that created the sequestration. And the budget deal, in itself, caused over a billion dollars in spending cuts at the worst possible time.”

Paul Jay (c. 1:15):  “Well, just to remind everyone, the sequestration formula deal was a proposal was a proposal by President Obama.”

Professor Black:  “Well indeed, it was created by President Obama, now, under, of course, Republican pressure, where they’re threatening to not raise the debt ceiling. But it was an Obama idea. And the principal framer of it was Jacob Lew, the President’s selection to be Geithner’s replacement as disastrous Treasury Secretary.

“And then the President blocked a Republican effort to get rid of sequestration. And then the President went so far as to threaten a veto any bill, that got rid of sequestration when the Republicans tried to get rid of it again.

“Now, you shouldn’t think too well of the Republicans in all of this. What they were worried about, pretty much solely, was defence spending. And making sure there’d never be a drop in defence spending.

“In any event, what you see is neither party, even at this time of crisis, where all the supposedly serious people finally agree that this act of austerity is insane, self-destructive, might well cause another recession. Neither party is getting behind a clean bill. It would be, literally, one sentence: The sequestration provisions are repealed. Right? And we could be free of, at least, that aspect of the insanity. We’d still have the debt ceiling insanity. But the sequestration, we would no longer be shooting ourselves, not in the foot, but substantially farther up our anatomy.

“So, as I said, the sequestration is large, but it’s not the sequestration all by itself. It’s the fact that it is this fourth act austerity. I began to mention the mid-2011 pact knocked off a billion dollars in spending at the worst possible time.

“Then we raised taxes on the wealthy, which you may well support, but it is an act, that pushes you toward austerity.

“And then the far larger and vastly more destructive resuming the entire payroll tax on Social Security, which economists think—all by itself—knocked a half percentage point of growth. And growth is really small, so that’s a massively important thing, that is gonna cause hundreds of thousands of people their jobs.

“And, now, the fourth shoe to drop of austerity, of course, is going to be the sequestration.

“And, meanwhile, this is happening while we see Europe forced back into a completely gratuitous recession. The entire Eurozone, on average, is back in recession. And the European Commissions have just come out with dreadful projections, saying things are going to get worse.

“Spain just announced today that a single bank that they were bailing out—which is really seven failed thrift-type entities—is going to cost them roughly $25 Billion dollars just this year. And Spain’s a large economy, but nowhere close to the United States.

“So, this is bigger, and by far, than the most expensive US banking failure in history, all occurring in Spain, all being driven by the bubble and fraud and then this self-inflicted wound of austerity.

“And we can’t even get the President, who, you know, on day one will say, the sequestration disaster is insane.

“And on day two refuses to put forward a clean bill to stop it.

“And on day three says, hey, that Jake Lew, the guy, that created this disastrous scenario, that is, potentially, going to hurl us back into recession. He should be our Treasury Secretary and create our financial policies.”

Paul Jay:  “So, when you read the business press, some of the stories are about how blasé corporate America is. And they’re not really concerned with $85 Billion dollars of cuts. The stock market’s doing fine. It does not seem to be affected by it. Why is that, if the threat of recession is looming?”

Professor Black (c. 5:53):  “Well, recession isn’t necessarily bad for the stock market. We’ve had a record recovery in stock market prices with extremely weak recovery from the Great Recession because it’s been strangled.

“So, they love the current system, in which wages have not simply plateaud, household wealth for the middle class is down to where it was 18 years ago. There’s over 15% of loss of wealth of the middle class and working-class and a massive increase in corporate profitability where we get all these productivity gains, which is what allows you to pay workers higher wages without any inflationary risk. And virtually all of those productivity gains during the Great Recession have gone to the richest—not 1%—but the richest one-thousandth of 1%.”

Paul Jay (c. 6:54):  “Thanks very much for joining us, Bill. And thank you for joining us on the Real News Network.”


Transcript by Felipe Messina for New Economic Perspectives