BREAK IN TRANSCRIPT
Joining us now is Democratic Congressman Barney Frank of Massachusetts. He"s the ranking member of the House Financial Services Committee and co-sponsor of the Dodd-Frank Wall Street reform, a consumer protection act passed last year.
Congressman Frank, it is nice to see you.
REP. BARNEY FRANK (D), MASSACHUSETTS: Thank you, Rachel.
MADDOW: Right before the show tonight, news crossed that Standard & Poor"s has put the U.S. on credit watch with a one in two chance it could lower the U.S. credit rating. What do you think of the impact of this is?
FRANK: Well, it"s going to be negative. But I have to say, I have been very critical of the ratings agencies, and I think they did a terrible job of overrating mortgage securities. They are unfair to states.
But in this case, I think they had no choice. It"s important to note that--and you made this clear, it"s not because our economy is in any serious trouble or that we can"t repay. It is that the right wing that has taken control of the Republican Party might temporarily refuse to pay because they don"t think it will make any difference.
And there may be some sense on the part of some that, oh, people can"t be that crazy. But they haven"t lived with these people for six months the way I have. And, yes, they are that divorced from reality. That"s a better word than crazy.
And this is an indication that if we don"t make the payment, you are going to see serious trouble. Now, noted that the auction went well, but that"s I think, as you know, that"s a 30-year auction. And nobody thinks that the default if it happens it"s going to last for a very long time. So, if you are talking about a 30-year time period, yes, you"ll get your interest over that 30 years.
But there are short-term things that have to be done. And I think it"s very clear with those ratings coming out that if the date passes, August 2nd, when we are now going to be unable to make some of these payments that we"ve got, that"s going to cost us some money.
It"s going to cost us, you know, we"re in the--we"re fighting as you said to get a recovery. And paradoxically, the Republicans have told us the biggest problem is uncertainty, that that"s the biggest problem. Nothing has created more uncertainty than this right-wing threat not to pay our debts.
MADDOW: President Obama says that he is willing to negotiate with Republicans for big spending cuts. Republicans have been demanding trillions in cuts. Today, the Fed chairman warned the Senate against that. He said the recovery is still rather fragile. And he said sharp and excessive cuts in the very short-term would potentially be damaging to that recovery.
How do you explain those two things going on simultaneously?
FRANK: Well, it"s a timing question. In fact, I had exactly that conversation with Chairman Bernanke yesterday. He listed headwinds in the economy that might cause a short term--a slowdown in recovery. And one of the headwinds he listed was effective fiscal timing. In fact, I noted in my opening statement that since the summer of 2009 when we had just gotten the benefit of the stimulus, we have lost half a million jobs in state and local government.
In fact, all this year, and every month, the private sector has gained jobs, averaging about 160,000. Not as much as we"d like. But every month the state and local government has lost jobs. That"s teachers, firefighters, public works employees, and day care workers being laid off.
And the way you put those two together is this--in the near term, that is for the rest of this year, we should not be cutting. In fact, we should be spending more. And the quickest and best way to do that is provide some greater assistance to state and local government, because the right wing in the House is going the opposite direction, planning to cut the cops program by which we provide federal help to keep the police on the street.
What I make--what I think makes perfect sense is, in fact, to say, yes, over the longer term, we have to bring down the deficit. But those cuts, whatever we do, the increase of revenue, which you ought to be a part of this, increase taxes, well, it shouldn"t go into effect for the rest of this year so that for the next six months, we should be stimulative, but within the context of a long term program with one exception. We could make cuts now of over $100 billion a year on an annual rate that would have no negative effect on jobs.
Well, it would. I take it back. It would have negative effects on jobs in Baghdad, in Kabul, in Kandahar, in other parts of the Baghdad--of Iraq and Afghanistan.
And the irony of course is that we are being told that we are in this terrible crisis, when the Republicans brought out a military bill that increased the military by $17 billion, gives more money to Iraq and Afghanistan, and I have to say I am very nervous that the president might agree to keep troops in Iraq next year, which is longer than George Bush wanted to keep them there.
So, yes, I think we can in the short-term save a lot of money by bringing the troops home with no negative job impact.
But to get back to your question, what Mr. Bernanke said correctly is, yes, over the long-term, you should have a plan for deficit reduction from both higher taxes in my judgment and spending cuts. But in the short-term, if you were to do that, you would slow down the recovery. And that"s why it"s a timing issue.
MADDOW: In terms of what you just said there about defense cuts, and what might be possible in this Congress, I feel like the things that I have heard from Republicans that seem like they have sort of silver linings around them economically are that they say they do like infrastructure spending, even though they have been voting against it, and there are some Republicans who are saying the wars in Iraq and Afghanistan should be wound down and quickly. There are savings there.
Is there any way that there could be sort of a third way solution, wherein some defense money is put toward infrastructure in the United States directly?
FRANK: Sure, if the votes are there. The problem is that we made gains on this. I had an amendment, I was being very moderate. I suggested that--I moved that instead of giving $17 billion additional to the Defense Department, we give them only $8.5 billion, cut it in half, wining my colleagues from this commitment to one limited defense spending, and I got 182 votes. That"s better than we would have gotten last year, but unfortunately 40 votes short of a majority.
I mean, unfortunately, right now when the Republicans talk about supporting infrastructure, it"s in Iraq and Afghanistan. We"re doing a lot of infrastructure spending there, along with the corruption we encounter in those places. We don"t get much of a bang for our buck.
But the Republicans who oversee--they see corruption more than it exists in programs here in America and can"t see it when it hits you in the face in those countries.
MADDOW: Congressman Barney Frank of Massachusetts, it"s always a pleasure to have you here, sir. Thanks for your time.
FRANK: Thank you, Rachel.
BREAK IN TRANSCRIPT