Conference Presentation, Panel
MI Summit 2013 - London: U.S. Overview: Gathering Steam?
Milken InstituteGregory Cappelli, Ross DeVol, Harold Ford Jr., J. Todd Morley, Eric Spiegel, Philippa Thomas
- A partial U.S. government shutdown is expected to last one to two weeks, beginning October 1, driven by legislative gridlock over the debt ceiling.
- The U.S. Treasury anticipates hitting the debt ceiling limit on October 16 or 17, risking potential damage to the U.S. credit rating if bills cannot be paid.
- Congressional negotiations are paralyzed by the "Tea Party" faction's opposition to the Affordable Care Act (Obamacare) and their willingness to hold the debt ceiling hostage.
- Speaker Paul Ryan is identified as a critical potential dealmaker, expected to pressure 40–50 House Republicans to compromise on the debt ceiling to avoid a default.
- Upcoming primary election filing deadlines are forcing moderate Republicans to align with party lines rather than compromise with the White House.
- Senate Minority Leader Mitch McConnell faces a primary challenge from Rand Paul, limiting his ability to negotiate a deal with President Obama.
- House Speaker John Cornyn faces a potential primary threat from Ted Cruz, delaying the filing deadline until mid-January and creating strategic uncertainty.
- Despite political turmoil, U.S. real GDP growth is estimated at approximately 2%, driven by resilience against headwinds like sequestration and tax increases.
- The U.S. consumer debt-service burden has declined from 14% at the peak of the crisis to 10.5%, suggesting a bottomed-out balance sheet.
- Light vehicle sales have recovered to nearly pre-recession peaks, supported by zero-interest rate financing and an aging vehicle fleet requiring replacement.
- Business investment in non-defense capital goods rose 8% year-over-year after a brief lull caused by tax uncertainty at the end of the last year.
- Manufacturing activity is showing signs of a renaissance, with new chemical and steel plants opening in Ohio and Texas due to cheap energy and rising Asian labor costs.
- Approximately 3.5 million job openings in the U.S. currently go unfilled due to a critical skills gap in the labor force.
- Over 80 million U.S. workers over age 25 lack a bachelor's degree, contributing to the mismatch between available jobs and worker qualifications.
- The U.S. ranks 21st globally in high school graduation rates and 16th in college graduation outcomes, eroding long-term competitiveness.
- Companies like Siemens are implementing apprenticeship programs with community colleges to bypass the lack of skilled graduates in technical fields.
- Regulatory uncertainty in the healthcare sector, including the implementation of Obamacare exchanges and medical device taxes, is causing companies to delay investment.
- The medical device tax under Obamacare is projected to cost the industry approximately $80 million this year, forcing cuts in R&D and hiring.
- Cybersecurity is identified as a robust growth sector, estimated to generate $300–$400 billion annually due to rising cyber theft and national security concerns.
- Federal Reserve Chairman Ben Bernanke aims to complete the "taper" of asset purchases before leaving office, with potential easing beginning in December.
- Many experts believe the Fed cannot pause stimulus before spring due to political constraints and the risks of withdrawing easy money too soon.
- The U.S. currently has the highest corporate tax rate globally, with the effective rate also high, though bipartisan agreement on reform remains elusive.
- Trillions of dollars remain offshore; proponents suggest a tax holiday contingent on spending half the repatriated funds on education and training.
- Executive confidence among the 250 largest U.S. companies is currently below the long-run average, despite available cheap capital and an energy boom.
- Financial asset inflation, driven by the Fed's monetary policy, is criticized for failing to generate proportional real economic growth or job creation.
- Export markets have weakened, with U.S. exports projected to be significantly lower than the previous year's $6 billion due to global slowdowns.
- A default on the U.S. debt would constitute a major modern-era crisis, severely damaging business confidence and halting marginal investments.
- Panelists suggest that if a debt ceiling deal is reached, it may not generate sustained momentum due to the approaching midterm election season.
- Corporate tax reform to a 25% rate and approval of the Keystone Pipeline are cited as specific actions needed to break the current economic logjam.
- Outdated export controls prevent U.S. companies from selling advanced technology to markets like China, forcing them to transfer IP to foreign competitors.
- The administration's rhetoric is criticized for demonizing Wall Street, creating a toxic environment for capital markets essential to Main Street growth.
- Education spending in the U.S. consumes only 2% of household income, compared to 15–20% in China, highlighting a structural investment deficit.
- The Fed's shift from fighting inflation to manipulating asset prices and housing markets is viewed as an unprecedented overreach with unsustainable long-term risks.
- Panelists agree that "adults" are missing from the political landscape, citing a lack of willingness to negotiate and compromise compared to historical precedents like Reagan and Tip O'Neill.