The U.S. economy is “on an express track to real trouble,” former New York Stock Exchange Chairman Richard “Dick” Grasso cautioned.
That is, he said, unless lawmakers and business leaders are able to put aside their differences in search of solutions.
Grasso, recently in the spotlight amid speculation he may run for mayor of New York in 2012, sat down for an exclusive interview with the Business Journal June 20, prior to speaking at the Westchester Italian Cultural Center in Tuckahoe.
“If you look at what the market over the last month or so has said ”¦ there”™s tremendous global insecurity,” Grasso said, pointing to the debt crises unfolding in Greece and Portugal, in addition to uncertainty in U.S. markets, which broke out of a six-week funk after seeing the Dow Jones Industrial Average drop from 12,800 points to below 11,900 points between May 1 and June 15.
“The market ”¦ has corrected down to a level that reflects the uncertainty of the moment,” Grasso said. “Bear in mind, the market is still up for the year.”
However, Grasso said it could take as long as five or six years before the unemployment rate even approaches the pre-recession mark of 4.4 percent from May 2007.
“We will hopefully be on a path to under 6 percent within five or six years,” Grasso said. “I think the business community wants to be successful in bringing down the unemployment rate. Certainly at 9.1 percent no one is happy.”
At present, Grasso said the U.S. gross domestic product for the first half of 2011 is likely to grow between 2 percent and 2.5 percent, below the 3 percent mark that was initially forecast by financial analysts.
While Goldman Sachs last week said it still expects the economy to bounce back in the second half of the year, Grasso cautioned that a number of signs might suggest otherwise.
“Uncertainty, insecurity over global financial conditions and the fact that we are financing three global conflicts ”“ it all adds up to a very unsettled, uncertain situation,” he said. The U.S. GDP grew at an annual rate of just 1.8 percent in the first quarter, down from 3.1 percent in the last quarter of 2010.
Two immediate steps Congress can take include raising the debt ceiling and declaring a repatriation tax holiday, he said, so businesses that are currently holding billions of dollars overseas may turn those dollars into jobs and infrastructure in the U.S.
“We”™re bumping up against our $14.2 trillion debt ceiling,” Grasso said. “The question becomes, will the ceiling get raised on a permanent basis or a temporary basis ”¦ and how open both sides of the aisle are going to be with the American public?”
He said the U.S. is dangerously close to defaulting on its loans and that without any resolution on the debt ceiling it will reach the $14.2 trillion mark in mid-July.
Any movement of the debt ceiling should be tied to economic reform, including spending cuts, downsizing the government and yes, tax increases, he said.
While the prospect of another stimulus package from Congress is highly unlikely, Grasso said the U.S. could turn the proper tax code exemptions into jobs.
“There are a lot of ways the government can creatively use the tax code without having to do a program similar to TARP,” Grasso said, referring to the 2008 stimulus enacted under the presidential administration of George W. Bush.
A proposal to lower the federal income tax on profits generated overseas to 5.25 percent for one year from 35 percent could inject as much as $1 trillion into the economy, the New York Times reported on Monday. Currently, companies such as Google, Apple and Microsoft are holding billions of dollars overseas.
“If you can bring that money back and tie the tax holiday to job creation, you get the benefit of a stimulus program” without spending any taxpayer dollars, Grasso said.
Grasso had high praise for Gov. Andrew Cuomo”™s efforts at revitalizing the state”™s economy.
“I think this governor has a very acute understanding that helping the business community succeed will help him succeed as a leader of the state,” Grasso said. He said that while the challenges are significant, the governor is on the right track, despite the recently announced departures from the state by Starwood Hotels and Resorts Worldwide Inc. and a number of manufacturing companies, among others.
“This state, economically, if you subtract the city of New York, has had enormous dislocations and I think that the governor understands that and is working to try and correct that,” Grasso said.
Grasso also criticized Wall Street”™s executives and the overly competitive environment that he said permeates the market today, saying that that was not the case in the days following the terrorist attacks of Sept. 11, when everyone “took off their jerseys” and worked together to get the economy back on its feet.
“Wall Street has got to get back to that,” Grasso said.
In response to the question of the evening, Grasso said he would consider a run for the mayor”™s office but his preference is for current police Commissioner Ray Kelly to run for the post on the Republican ticket.
“I”™m really waiting to see what the P.C. does,” Grasso said. “I think he”™s the perfect person to be the successor to Bloomberg.” But if that is not the case and if the Democrats appear divided, Grasso said he would enter the race.
“I believe starting in 2014 that the city is going to have the types of economic challenges that will need a business mind and not a politician,” Grasso said.
