The U.S. economy is starting to pull out of recession, but deflation will stall a full recovery for several months, according to Steve Forbes, president and CEO of Forbes.
Speaking at the Securities Industry Association (SIA) Internet Trends & Strategies conference in New York on February 28, Forbes said that while the current war on terror is in a lull, the U.S. should brace for further attacks in the next several months and perhaps even expect a war between India and Pakistan.
Forbes also fears Congress will “overreact” to the Enron fallout. He says lawmakers may exaggerate any suspicious activity by a company, sparking mayhem in the markets. “Congress may do something foolish,” he said. Luckily, the Enron crumble has had a minimal effect on the markets. “The capital markets have absorbed [the Enron bankruptcy], but the danger is in what Congress might do to stop more Enrons.”
Post Enron, Forbes said, new regulation will be adopted placing audit committees in charge of auditing a company’s books. And auditors will be prohibited from acting as both auditor and consultant to a company. And the somewhat controversial retirement bill, H.R. 2269, the Retirement Security Advice Act of 2001, which allows all types of advisors to give advice to consumers on their 401(k)s, will pass.
Forbes also said there are more corporate bankruptcies on the horizon.
But “the future is fabulous” for high tech, Forbes said. The high-tech revolution is just beginning, and new technology innovations will crop up despite Washington’s attempts to quash developments via regulation. “High-tech is now one of the most regulated areas.”
Technology “was not over-ballyhooed” during the raging dot-com 1990s, he says, and while participants in technology will “fall by the wayside,” technology will continue to move forward.
Forbes also said the U.S. economy is recovering from what he thinks was an “unnecessary recession.” Investment funds are unavailable to businesses because of deflation. Lenders are unwilling to loan money, despite the low level of interest rates. Lenders fear businesses’ pricing power is so weak they will be unable to recover the cost of doing business, and therefore will be unable to pay back loans. “Deflation has gotten very little coverage.”
U.S. taxpayers are also due for a big tax cut, Forbes said. “The [tax cut] we got last summer was a cup of tea posing as a bottle of bourbon–no kick.” U.S. taxpayers are now paying a higher percentage of their income to Uncle Sam than during World War II, he said. And the alternative minimum tax should be abolished, he said.
Consumers should also watch what’s happening in the global economy, Forbes said. “The U.S., through the International Monetary Fund (IMF), is telling countries [like Argentina] to raise taxes and devalue their currency. This doesn’t work because it causes inflation,” he said. “[The IMF] has destroyed Argentina and now it’s about to destroy Turkey.”