Fiscal Cliff Threatens U.S. with Recession

Today at 4pm ET, Bloomberg Television’s Trish Regan sits down with four CEOs for a special edition of “Street Smart” focused on fixing the country’s debt. Tune in to hear from BlackRock CEO Larry Fink, NASDAQ CEO Bob Greifeld, UPS CEO Scott Davis and Honeywell CEO David Cote, who are all part of the Fix the Debt campaign.

The CEOs agree: It’s Washington’s fault we’re not hiring and not spending. Honeywell’s Cote says, “If we were playing with fire in the debt ceiling, we’ll be playing with nitroglycerine now when it comes to the fiscal cliff.”

BlackRock’s Fink says, “We need to speak out as CEOs…Politicians generally address things when their back’s against the wall…We have the threat of going into a recession in the first quarter…This is a very uncertain moment.” Excerpts from the interview can be found below, courtesy of Bloomberg Television.

“Quantitative easing is probably the right thing to do at this moment. I believe because consumers are pulling back, CEOs are pulling back. I think we have a threat right now of going into a recession in the first quarter. The Federal Reserve in QE3 is trying to keep the economy afloat while we go through this transition. My expectation would be, if we had a grand bargain, the Federal Reserve would cease QE3 quite rapidly… And so, to me, this is a very uncertain moment.”

Cote on why Bernanke is right to enact QE:

“Somebody is acting as an adult and buying some time for people to actually do the fiscal work that they need to do.”

Cote on the fiscal cliff:

“And one of the concerns that we have as CEOs is that if you take a look at the way the debt ceiling was addressed in the U.S. a few months ago, it’s interesting. I’ve talked to politicians that say, where was the business community? You know, why weren’t you guys in there and saying something and pounding on our desk? And my response has generally been, we thought this was just the normal political baloney you guys went through. We never thought you could be this reckless or irresponsible with the country’s finances. And the response back is generally, well, now you know. So when you think about it that way, if we were playing with fire in the debt ceiling, we’ll be playing with nitroglycerine now when it comes to the fiscal cliff.”

Fink on why he’s buying stock instead of hiring and investing:

“We’re buying back huge amounts of our own equity. We are helping our shareholders because we can’t feel comfortable, at the moment, in terms of hiring more or reinvesting, especially plants and equipment, which have a five-ish-year breakeven. So you’re not going to jump in and invest until you feel more comfortable.”

Fink on why the debt needs to be addressed now:

“Ultimately the marketplace is going to rebel on this large amount of debt. And we most probably will see higher interest rates. Obviously, that’s a big impact in my business. If you see much higher interest rates, ultimately that will be a drag on equities. We need to address the fiscal deficit before we begin to see higher interest rates.”

Fink on the lack of ability to address fiscal cliff in Washington:

“We need to speak out as CEOs. We need to address this with politicians. Politicians generally address things when their back’s against the wall. I think their back’s against the wall for the last two years, and they just haven’t felt it.”

Davis on the impact of Washington gridlock on investing:

“Our millions of customers have to know what the rules of the road are, what policy is for the next four or five years, to make those [hiring and spending] decisions. If they want to stock inventories, if they want to hire people, if they want to invest in equipment, you have to know the rules of the road more than three or four months out. The small- and medium-sized businesses, really are the backbone of UPS’s customer base, are sitting on their hands. You know, they’re not going to start spending money, hiring people until they have an idea – a decision to be made.”

Cote on Washington lawmakers:

“They’re a pretty odd bunch, all in all. You listen to Republicans say there won’t be a revenue increase unless there’s entitlement reform. And you listen to the Democrats say there won’t be entitlement reform unless there’s a revenue increase. Now, most of us as businesspeople would say, well, that sounds like a deal, actually. But for some reason, they have the ability to complexify everything. If you got a couple of businesspeople together and said, OK, we understand, now we just need to discuss numbers, for some reason, they turn it into this unbelievable problem.”

Fink on what’s holding up the economy right now:

“Corporations are sitting with $1.7 trillion in cash. The amount of money that’s sitting in money market funds and bank deposits and low-duration bonds, if we felt that there is a fix, and if this fix is tangible, understandable, and most importantly credible, I believe confidence would be renewed and we would have a new renaissance.”

Greifeld on low treasury rates:

“We have 1.6 percent interest rate on 10-year Treasuries. There’s nothing the U.S. government has done in the noble past to deserve that low of a rate, in my mind.”