Jagran Post

jagran Post
post.jagran.com

Obama administration playing with dynamite, US CEOs say of ‘fiscal cliff’

Publish Date: 14 Nov 2012, 07:47 PM
Last Updated: 15 Nov 2012, 09:04 AM
quick bites

Obama playing with dynamite: US CEOs
Obama playing with dynamite: US CEOs

Boston: Corporate America is raising the volume of its plea that the US government avert a year-end "fiscal cliff" that could send the nation back into recession, but chief executives aren't pushing the panic button just yet.

With a heated election season in the rear-view mirror, executives are calling on the White House and congressional leaders to head off a self-imposed deadline that could bring USD 600 billion in spending cuts and higher taxes early in 2013 if they are unable to reach a deal on cutting the federal budget deficit.

The Business Roundtable on Tuesday kicked off a print, radio and online ad campaign on which it plans to spend hundreds of thousands of dollars featuring the chiefs of Honeywell International Inc, Xerox Corp and United Parcel Service Inc calling on lawmakers to resolve the issue.
One of the more dramatic warnings of the consequences of allowing the US economy to go over the fiscal cliff came from Honeywell CEO David Cote.

"If the last debt ceiling discussion was playing with fire, this time they're playing with nitroglycerin," Cote said in an interview. "If they go off the cliff, I think it would spark a recession that's a lot bigger than economists think. Some think it would just be a small fire. I think it could turn into a conflagration."

The nonpartisan Congressional Budget Office estimates that the US economy would contract 0.5 percent in 2013 if the government fails to stop the budget cuts and tax increases — far below the 2 percent growth economists currently forecast.

A failure in Washington to solve the crisis by the year's end could prompt major companies to curtail investment plans, said Duncan Niederauer, CEO of NYSE Euronext, operator of the New York Stock Exchange.

"We simply won't be investing in the United States. We will be investing elsewhere where we have more certainty of the outcome," Niederauer said in an interview.

About a dozen top US CEOs, including General Electric Co's Jeff Immelt, Aetna Inc's Mark Bertolini, American Express Co's Ken Chenault and Dow Chemical Co's Andrew Liveris are scheduled to meet with President Barack Obama on Wednesday to discuss the issue.

The four are members of "Fix the Debt," an ad-hoc lobbying organization that this week launched an advertising campaign that advocates long-term debt reduction.

Uncertainty factor

Bank of America Corp CEO Brian Moynihan said on Tuesday that worries about the cliff have companies holding off on spending.

"That uncertainty continues to hold back the recovery," Moynihan said, speaking at an investor conference in New York.

Sandy Cutler, CEO of manufacturer Eaton Corp, shared his concern.

"Until we solve the fiscal issues (in the United States and Europe), you're not going to get back to normal GDP growth," Cutler told investors on Tuesday.

CEOs are not alone in this worry. The CBO report warned that failure to reach a deal could push the US unemployment rate up to 9.1 percent, the highest since July 1991. It is currently 7.9 percent.

Obama and the Republican leadership of the House of Representatives have signaled a more conciliatory tone since last week's election, when Obama soundly defeated Republican challenger Mitt Romney, whose party retained a majority in the House.

Wilbur Ross, an investor known for taking stakes in distressed companies, is bracing for higher tax rates in 2013.

"We, like many people, have been trying to utilize gains this year. It does seem that the probability is that rates will go up," Ross said in an interview with Reuters Insider. "We don't have a "for sale" sign on anything. But we are mindful that there is a benefit to concluding things this year rather than next.

No signs of panic

Concerns about the cliff have not prompted customers to cancel orders, though they have added to an overall level of uneasiness that has companies wary of making large capital purchases or hiring significant numbers of new workers.

"We haven't seen the panicking, like, 'I'm not going to order something because of the fiscal cliff,'" said Steve Shawley, chief financial officer of heating and cooling systems maker Ingersoll Rand Plc (IR.N). "Customers are being very judicious with their orders."

Likewise, JPMorgan Chase & Co CEO Jamie Dimon last month told investors he did not expect the negotiations to hurt lending in the fourth quarter.

"The fiscal cliff isn't going to change us," Dimon said, referring to JPMorgan's commercial bank, which loans money to businesses. The bank's investment banking side could be more vulnerable if the debate makes investors jittery, he allowed.

Weapons, medicines in the cross-hairs

The defense and healthcare sectors are the most vulnerable to the fiscal cliff, as they face the threat of sequestration — automatic, across-the-board cuts to their funding.

Markers of weapons systems note that they have long been preparing for declining sales as the United States winds down two long warns in Iraq and Afghanistan. The industry has already shed tens of thousands of jobs and closed facilities.

Lockheed Martin Corp's new president and chief operating officer, Marillyn Hewson, told analysts on Monday her company had been preparing for tighter defense budgets for years, even before the sequestration deal.

"We aren't going to see a major change," said Hewson. "We've been very proactive as a leadership team in taking actions in recent years to address our cost structure, to look at how we can make our product more affordable."

Automatic cuts to the federal budget could reduce federal health spending by USD 21.5 billion in 2013, potentially affecting everything from Medicare to the Food and Drug Administration, according to an analysis by PwC's Health Research Institute.

Vincent Forlenza, the CEO of Beckton Dickinson & Co, said the labs he supplies have held off on buying new instruments because of the threat of spending cuts.

"If we don't get to a deal we will have another year of paralysis and putting off research," Forlenza said. "The impact of uncertainty on the (National Institutes of Health) budget is causing our research customers to put off research."

(Agencies)

Latest News from World News Desk

 

For Latest News Updates Follow Jagran Post on

SHARE YOUR VIEWS - POST YOUR COMMENT BELOW
We encourage you to log in and comment. Non-logged-in comments will go through a verification process for security reasons.

Characters remaining


Login/Comment with:ORPost your comment using security code
Name*
E-mail*
Word Verification:*
  Type the characters you see in the picture below

    News@Now