Economists are warning that the upcoming sequester could severely harm the economy as government agencies at the federal, state and local level will see sharp spending cuts.
The sequester’s cuts this year will amount to $85.3 billion. Around half of this spending will be cut from the waste-ridden defense budget, but much of the rest of it will come out of necessary investments in the country’s public infrastructure.
But there’s another area of the budget where almost as much money is spent — subsidies to Big Banks. In an editorial published last week, Bloomberg noted that the 10 biggest banks get an effective annual subsidy of $83 billion from taxpayers, and that almost all their recent profits are subsidized by the federal government.
Where did Bloomberg get their $83 billion number? They explain:
To recap, the largest banks can borrow money at a lower rate because creditors assume the government, on behalf of taxpayers, will rescue them in an emergency. In a 2012 study, two economists -- Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz -- estimated the value of that too-big-to-fail subsidy at about 0.8 percentage point. We multiplied that number by the top 10 U.S. banks' total liabilities to come up with $83 billion a year.
That’s only $2.3 billion short of the $85.3 billion that comprise the sequester cuts. It would therefore be logical if the government were to instead look at cutting these subsidies to Wall Street instead of investments in Main Street America.