US, Like Europe, Must Face Austerity in the Near Future

The U.S. economy and the value of the dollar, while nowhere near either’s most desirable peak are, in reality, just fine in the short-term, says JP Morgan’s Kevin Hebner, who opened up the Tuesday sessions of FCIB’s annual Global Conference in greater West Palm Beach, FL. However, change is going to be needed to address underlying problems in the not too distant future.

Hebner noted that the U.S. and dollar is doing well and will continue to do so because they considered a safe haven. Proof is in the fact that international investors are abandoning the third largest “safe haven,” Italy for obvious reasons and because the bond markets markets simply are too small in other “safe haven” locations such as Norway and New Zealand.

Additionally, forecasts of a Chinese slowdown and the impact that can have on the United States did not seem to concern Hebner greatly either. He noted China is “not the next Dubai times 1,000…they are going to come through just fine.” However, he did note the United States has to take a hard look at starting austerity measures to gets its out of line debt-to-GDP ratio. He predicted this could, and perhaps should, start as early as 2013, post-presidential election cycle, and continue for the remainder of the decade.

“It’s a marathon, not a sprint,” he said of getting through austerity to a better ratio. Still, the United States remains in better shape than Europe, especially a Greece that needs sustained cuts of about 70% to the public sector to get into a normal debt ratio. It’s something that obviously will continue to weigh down Europe, as will problems in the larger, more important Italian economy.

“Europe’s [version of] TARP, the EFSF, is having a nightmare raising money,” he noted. “Their bond auction was a failure. There’s no clarity on how this is going to play out in the European banking sector.”

Note: Check back throughout the week here and at our Twitter account (NACM_National) for live coverage from FCIB’s Annual Global Conference from greater West Palm Beach, FL.

Brian Shappell, NACM staff writer

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