While news and analyses of the presidential debates and the two candidates’ visions (or lack of) for the country continue to dominate, a growing chorus of CEOs and other business leaders across the country are sounding fresh rounds of alarms over the looming fiscal cliff of steep government spending cuts and tax hikes set to occur early next year – unless Congress and the president take action.
This morning an influential group of big bank executives, including Jamie Dimon, chairman and CEO of JPMorgan Chase; Lloyd Blankfein of Goldman Sachs; Brian Moynihan of Bank of America; John Stumpf of Wells Fargo; and Sergio Ermotti of UBS AG sent a joint letter to President Obama and members of Congress urging decisive action toward reaching “a bipartisan agreement to avoid the approaching fiscal cliff, and take concrete steps to restore the United States’ long-term fiscal footing.”
(You can read the letter in its entirety here.)
“The consequences of inaction – for stability in global financial markets, for economic growth, for millions of Americans still without work, and for the financial circumstances of American businesses and households – would be very grave," wrote the 16 executives, all members of the Financial Services Forum, the industry trade group.
Also this week, Bill Harris, former CEO of PayPal and of Intuit, and founder of Personal Capital told The Fiscal Tiimes, “We need greater responsibility from Washington, with both sides compromising on a long-term plan to right the ship.” Harris advised leaders to “cut spending and increase taxes with a comprehensive compromise, so that the job creators can create jobs. We need to take responsibility for our actions as a nation,” he said, “and build an economy that people have confidence in – so that lenders will lend, buyers will buy, and employers will employ.”
To get to that place, Harris added, “we need to get the federal deficit under control. That takes both spending cuts and tax increases – something like the Simpson-Bowles compromise that nearly made it until hyper-partisan bickering sent it down. And we need certainty. More important than whether tax rates are 35 percent or 39 percent is knowing what they will be, so we can develop a plan. In these uncertain times, certainty isn’t out of reach.”
On Wednesday, CSX Corp. (CSX) chief executive Michael Ward said that the coming fiscal cliff could derail what he thinks would otherwise be a continued slow-growth U.S. economy next year. In an interview with Fox Business News, Ward, who runs one of the country’s leading railroads, said that he hoped that “once the election is over, cooler heads will prevail” and that lawmakers will work to resolve the issue.
But he also said that uncertainty among businesses and consumers has been a big contributor to an economic slowdown – and to his railroad’s freight volumes – over the past few months. “We’re seeing [the economy] slow down some,” Ward said, citing the fiscal cliff as possibly the “predominant” factor. He added that weakness in China and Europe, as well as “all the negativity” from both sides in the U.S. presidential election, are contributing to the slowdown.
CSX, the first of the major U.S. railroads to report third-quarter results, said Tuesday its profit came in at $455 million, down from $464 million a year earlier.
Richard Davis, CEO of the Minneapolis-based U.S. Bankcorp, noted during his bank’s third-quarter earnings call on Wednesday that the impact of federal tax hikes and spending cuts set to kick in would have “a lagging, negative effect on the lender’s loan portfolio,” though banks have “higher quality borrowers now, compared to the beginning of the last recession,” according to the Minneapolis-St. Paul Business Journal. While the impact on lender portfolios wouldn’t be immediate, Davis added that “you’d once again see the nuances of credit quality in each bank’s portfolio as they would be stressed at different speeds and different depths” if the fiscal cliff was to occur.
In a worst-case scenario, said chief credit officer Bill Parker of U.S. Bankcorp, the economy would go back into recession and unemployment would rise again – all doing damage to the bank’s consumer loan portfolio.