Congress must reach a compromise bill to avert deep automatic spending cuts beginning next year that would cut too deeply into defense, Robert McTeer, the former president of the Federal Reserve Bank of Dallas said in Fort Worth Thursday.
Problem is, the fall elections are in the way, McTeer, who served as Dallas Fed chief between 1991 and 2005, said during a speech at a National Center for Policy Analysis luncheon at Colonial Country Club. The specter of big defense cuts, on top of ones already underway, "might bring the Republicans into a compromise attitude," McTeer said.
But those talks need "to be done real soon, and I don’t see any prospect of that," McTeer, who referred to the looming fight as a "fiscal cliff," said during an interview after the lunch.
The automatic cuts of more than $1 trillion over a decade will occur since Congress didn’t reach an agreement to cut the federal budget deficit last year.
McTeer, a distinguished fellow at the conservative Dallas-based think tank, said the nation’s economic recovery is weaker than appears.
"The numbers really haven’t improved all that much," he said.
Unemployment rates look better because a large number of discouraged jobseekers have left the workforce, housing hasn’t recovered, the fourth quarter’s gross domestic product gain was propped up by a buildup in inventories, and consumers are still smarting from the recessionary hit to their market portfolios and home equity, McTeer said.
Savers are shunning excess spending and boosting savings, good news for the future that nevertheless hurts the economy now, because it’s 70 percent driven by consumer spending, McTeer said.
"We’re better off, unless everybody does it," he said of the savings trend.
He lauded the Federal Reserve’s money-easing policies. "In my opinion, they saved our cookies," McTeer said.
The federal bank bailout, engineered by the Bush Administration in its final weeks in office, "saved the banking system and didn’t cost the taxpayers any money," McTeer said.
The massive federal stimulus package promulgated by President Obama and the Democrats "probably did a bit of good, but at a great fiscal cost," McTeer said.
McTeer was also critical of Obama’s campaign rhetoric proposing higher taxes for the wealthy.
"That’s created a lot of uncertainty and caused people to withdraw," he said.
McTeer questioned Fed Chairman Ben Bernanke’s recent announcements of its internal forecasts projecting a continued slow recovery.
"I worry about the flexibility he gives up," McTeer said in the interview.
McTeer also said he "personally" believes Bernanke is being conservative in the forecasts and may be looking for a recovery to pick up steam faster than the forecasts.
Of the upcoming budget talks, McTeer said, "it’s not necessary to eliminate the deficit. What’s important is that the deficit and debt as a percentage of GDP start back down. Politically, there’s going to have to be some compromise."