By Garth Kant
The Obama administration warned us it would be catastrophic. Sequestration would mean the loss of police officers, firefighters, teachers, soldiers, air control towers and shipyards...you name it.
Now that sequestration is here, President Obama says it's "dumb" but it's "not going to be an apocalypse."
Obama and House Speaker John Boehner failed to find an alternative to the sequester during a last-ditch meeting today, so $85 billion in automatic spending cuts are scheduled to begin to kick in at the end of the day.
"I am not a dictator," Obama said Friday. He says he can't lock leaders in a room to make a deal.
"So ultimately if Mitch McConnell or John Boehner say, 'I have to catch a plane,' I can't have Secret Service block the doorway," he said.
"I know that this has been some of the conventional wisdom that's been floating around Washington that even though most people agree that I'm being reasonable, that most people agree that I'm presenting a fair deal, the fact that they don't take it means that I should somehow do a Jedi mind-meld and convince them" to agree on a deal, Obama said.
"I think he realized the president of the United States was using him as a tool for his own benefit and was not actually in a partnership with him, and he also realized that we in the House were not happy with what was coming out of those negotiations," said Rep. Raúl R. Labrador, R-Idaho. "We were pretty blunt with him and the entire leadership team that we have to feel like we have a plan and a vision, and we're following up on that plan and that vision."
"The discussion about revenue is over," Boehner said. The speaker says the House has already voted on two measures to replace the sequester and "shouldn't have to pass a third bill."
Boehner urged Obama and Senate Democrats to present a plan to replace the sequester that could pass the Democratic-led Senate.
In his new softer tone on the effects of the sequester, Obama says the nation will survive it, though it would be painful for many people.
Now, even federal employees will begin to feel the pinch. A million, or more, federal workers may be taking unpaid time off. The prospect of sequestration has the government sending furlough notices, effective in April.
An assistant U.S. attorney received a note which read, "This memorandum notifies you that the Department of Justice (DOJ) proposes to furlough you no earlier than 30 days from receipt of this notice.
"We recognize the difficult personal financial implications of any furlough, no matter how limited its length. We will make every effort to keep you informed as additional information regarding agency funding becomes available," the letter added.
The Social Security Administration sent a notice Thursday to its employees saying it was seeking to "minimize the risk of furloughs," including limiting future hiring.
One person who's not worried is New York Mayor Michael Bloomberg. He says the United States could owe "an infinite amount of money" and not default.
"We are spending money we don't have," Mr. Bloomberg explained. "It's not like your household. In your household, people are saying, 'Oh, you can't spend money you don't have.' That is true for your household because nobody is going to lend you an infinite amount of money. When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money. … Our debt is so big and so many people own it that it's preposterous to think that they would stop selling us more. It's the old story: If you owe the bank $50,000, you got a problem. If you owe the bank $50 million, they got a problem. And that's a problem for the lenders. They can't stop lending us more money."
Bloomberg also doesn't think spending cuts are the answer.
"Listen, I've worked now in government for 11 years," he said. "One of the problems is the definition of 'waste.' You think the programs that I want are waste. And I think the problems that you want are waste. It's not like somebody is taking wheelbarrows full of dollar bills and throwing them out the window. It's a question of definition, what is 'waste' and what is not. Everything we have was put in by Congress, signed by the president. There was a reason for it, or a constituency for it. Most of the tax breaks are designed to encourage or discourage economic activity. There's a reason for it."
The economic storm clouds began gathering well before the sequester.
Americans' personal income made the biggest drop in January in 20 years. While the administration warned of dire consequences for the government if the sequestration's 2.2 percent budget cut goes into effect, ordinary Americans lost 3.6 percent of their incomes in the first month of the year, compared to the last month of 2012. That's a loss of $505.5 billion dollars to Americans' wallets.
The Commerce Department claims that if you don't count such factors as December dividends to shareholders, income actually increased 0.3 percent in January. But many companies paid early dividends to avoid upcoming tax hikes. Additionally, the payroll tax cut expired in January, causing most workers to pay 2 percent more in taxes this year.
Consumer spending, which accounts for about two-thirds of the U.S. economy, also suffered in January. Spending increased $18.2 billion, or 0.2 percent. Chris Christopher, Jr. of IHS Global Insight, calls that "anemic" and pointed to weak retail sales. He blames the payroll tax cut, saying it "hurt many Americans where it counts – in their pocket books."
The nation's largest retailer, Walmart, blames slow sales on higher payroll taxes, delays in income tax-refund processing and higher gas prices.
Another sign troubles are bigger than the sequester, the Commerce Department reports the economy grew at a 0.1 percent rate from October through December, less than forecast.
Something keeping the U.S. stock market from falling may be little change in inflation. Over the past 12 months prices rose 1.2, the smallest year-to-year gain since October 2009. The rate compares with the central bank's goal of 2 percent. Excluding food and energy costs, prices climbed 1.3 percent in January from the same month in 2012, the smallest year-to-year gain since April 2011.
Criticizing that policy, Sen. Bob Corker, a Republican from Tennessee, called Bernanke the biggest dove since World War II.
"You called me a dove, well maybe in some respects I am, but on the other hand my inflation record is the best of any Federal Reserve chairman in the postwar period – or at least one of the best," Bernanke said, citing the 2 percent average inflation rate.
But Bernanke hedged his bet and warned the sequester could threaten the economy. "The Congress and the administration should consider replacing the sharp, frontloaded spending cuts required by the sequestration, with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run," Bernanke said.
Bernanke found more blame elsewhere. "High unemployment has substantial costs, including not only the hardship faced by the unemployed and their families, but also the harm done to the vitality and productive potential of our economy as a whole," Bernanke said.
And WND reported the real unemployment rate for December 2012 is closer to 23 percent, not the 7.8 percent reported by the Bureau of Labor Statistics.
Commodities expert Jim Rogers, who once managed money with George Soros, says Bernanke has it all wrong and that his monetary policy is merely throwing fake money after bad debts.
In his most recent book, Street Smarts, Rogers says Bernanke "knows little about economics or finance, he has no idea how markets work, and the only thing he truly understands about currency is how to print it."
He says Bernanke misread the crisis, and that's why the economy is stagnant. Rogers believes the financial crisis was about subprime mortgage borrowers and European governments not being able to pay their bills. But he says Bernanke has treated it like a liquidity crisis, flooding the system with cash. That's led to an economy without growth, and dogged by the prospect of inflation.