On Nov. 6, the voters spoke. Last Wednesday and Thursday, investors took a turn. And their concern about the fiscal cliff put financial markets on the defensive. The Dow Jones industrial average dropped 434 points — more than 3 percent.
Over those two days, then, the (supposedly) smart money has been betting big that America’s political leaders will fail to resolve problems of their own making: Government overspending is unsustainable. A national debt of $16 trillion-and-climbing inevitably will choke off already anemic economic growth. Business leaders are waiting for government to act. Expectations, as the Dow attests, are low.
Now is the moment for President Barack Obama and Congress to restore the shaken confidence of American business and cut a big agreement on spending and debt. As of today our economy risks falling off the cliff in 47 days.
Lawmakers have given themselves until Jan. 1 to dodge the cliff. They need to reach a deal that averts automatic tax increases and government spending cuts, dual threats that were put in place under the Budget Control Act of 2011 to force a reckoning no later than … now.
Remember all that election palaver from both parties about the need for Washington to help create jobs, jobs, jobs? Yet as Republicans and Democrats on Capitol Hill open post-election negotiations with a flurry of public statements, evidence mounts that fiscal-cliff uncertainty has been discouraging business investment. Companies that may want to hire, won’t. They have no idea what Washington will do for them — or to them — as our economy approaches the cliff.
One recent warning sign came from the U.S. Federal Reserve. In its latest survey of senior loan officers, the Fed reported the good news that U.S. banks stand willing to lend. For the 11th quarter in the past 12, banks loosened their credit standards on commercial and industrial loans. As Bill Clinton would say, this is important: Credit is the lifeblood of business, and when it is readily available, businesses usually respond by increasing their spending. They buy equipment, or software. They expand facilities. They hire.
In the third quarter, however, the loan officers reported demand for commercial loans had fallen. It is a relatively small indicator, but it supports what we’ve heard all summer and fall from corporate leaders: Business investment is laboring under a pall of uncertainty. Wait-and-see is the order of the day. The recession in Europe and the slowdown in China play a role in that prevailing caution.
Most often, though, these execs talk about the fiscal cliff.
If only Washington would act, the cliff-induced drag on the economic recovery could turn around relatively quickly. Paul Dales of Capital Economics is among many economists who expect an immediate improvement in the nation’s business climate if a confidence-restoring deal is reached before Jan. 1: “Business investment will rebound early next year as those projects that were postponed suddenly receive the green light,” Dales predicts.
A deal that puts the government on a firm financial footing also would relieve the anxiety business experienced during the president’s first four years. Yes, the Obama administration gets credit for staving off financial catastrophe early on. There were no devastating bank runs. Unemployment retreated from its dismal highs. Our economy showed its resilience.
Yet American corporate leaders were not among those chanting for “Four More Years.” Additional costs imposed by the government health-insurance expansion known as Obamacare tops the list of concerns. The financial-services industry is resigned to lower profits, partly as a result of Obama-backed Dodd-Frank regulatory reform. The president’s disparaging remarks about “fat cat bankers on Wall Street” won’t be forgotten.
It’s not as if avoiding the cliff would end the tension between business and the administration. But it is an essential step on the path toward a robust recovery.
All of us should care. As is, unemployment stands at 7.9 percent, and job creation is barely keeping up with population growth.
If lame-duck lawmakers and the White House once again fail to act, fiscal-cliff spending cuts and tax increases would send the economy back into recession, the Congressional Budget Office reiterated in a dire report issued Wednesday. The jobless rate would shoot up to 9.1 percent.
America needs to do better.
The bankers are ready.
The business leaders are waiting.
President, Congress: It’s up to you.