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6 degrees of sequestration

How will the sequester affect you?

Marketplace Contributor Mar 1, 2013
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6 degrees of sequestration

How will the sequester affect you?

Marketplace Contributor Mar 1, 2013
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Sequester — maybe the only good thing you can say is that it’s a heck of a Scrabble word. Our political leaders couldn’t cut a budget deal, so the poison pill of spending cuts they deliberately designed to be too bitter to swallow is now stuck in our national throat. President Obama warned of dire consequences. But we’ll leave the politics of this mess to others. What Marketplace Money wants to know, as usual, is how this will affect ordinary people. We’re not thinking about aircraft carriers and corporate profits, although those are important. We’re thinking about retirement funds and credit card rates. And what will all this economic uncertainty do to our lives? Bottom line: How much doom and gloom do we need to be ready for? Here to advise us on how much Sequester Prozac we’re going to need is economist and author Julianne Malveaux.

When we go to work on Monday, will we find that the sky has fallen?

“No, the sky doesn’t fall on Monday. The sky probably falls on March 27 when we go again to see whether we’ll close government. In the meantime, I think we’ve already seen the effect of sequester on consumers. Spending at Walmart went down. Now Walmart is where you can get the cheapest stuff. So it suggests that even working class people are being very careful about what they’re spending and we know that spending is what drives the market.

Will this affect retirement plans? Interest rates? Ability to get a loan? How will this affect ordinary consumers?

“If you work for the federal government, you’re going to have less money in your pocket. If you work for somebody who supports the federal government — say the restaurant around the corner from the Treasury Department, you’re going to see fewer customers coming in. People are going to be cutting back. One of the stories that I found very interesting is I was in the airport last week and the line was a little bit longer than usual. I sort of grumbled a little bit and the woman who was checking me in said, ‘If we have the sequester, you’re going to have to wait even longer.’ Now again, that’s not going to happen in March, it’ll happen in April. So we’re going into the busy summer season for travel and you can expect people to stand in lines a bit longer. Now I can’t say how much longer, but they’re already talking about some smaller airports being closed. Now some people say that these are scare tactics. Now I’m not sure, if you’re asking for cuts across the board, that TSA won’t be cut,” says Malveaux.

The U.S. boasts the largest economy in the world. Should we be concerned that lawmakers can’t balance America’s budget?

“One of the other issues of sequester in taking roughly 6 percent out of our budget is that it will cause recession. That’s unquestionable. Austerity has not worked in Europe and it’s not going to work in the United States. Our economy is sitting on this precipice of recovery and going back down to recession. So if we have recession, we have world recession. Now for you personally, we should always maintain the best personal finances that we can. Using your credit card to pay for your lunch, unless you can pay it back at the end of the month, is a really bad idea. You don’t want to spend 20 percent interest on lunch. That’s one of the things that people need to think about: How much do I owe? Do I have a plan to pay it back? That’s the same thing that the International Monetary Fund has asked the United States to do. They’re not saying that we have to sequester, they’re saying to come up with a plan. What we have is a monthly emergency. I think the American people are getting tired of an emergency of the month,” says Malveaux.

Malveaux says as of this moment the sky hasn’t fallen, but it might fall in April and certainly if lawmakers can’t agree on a budget, we’ll see government close down.

To hear stories of how Linda Harlow and Erika Townes — two women affected by sequester cuts — are planning their survival strategies, click on the audio player above.

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