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Tags: Ross | US | Economy | Recession

Wilbur Ross: US Economy Dangling on Verge of Recession

Thursday, 07 June 2012 12:16 PM EDT

The U.S. economy is poised to slide into a recession thanks to anemic job growth, weak industrial production figures and consumers who spend more than they’re taking home, says international investor Wilbur Ross, CEO of WL Ross & Co.

A slew of dismal economic indicators points to a fresh economic downturn in the world's largest economy, especially the Bureau of Labor Statistics May jobs report.

"In the most recent jobs report, only 69,000 net jobs were created. We need to create over 100,000 just to keep the unemployment rate constant," Ross tells Reuters.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

"Second, the industrial production figures were awful; they've actually declined and third, consumers have been outspending the growth in real income. That can't continue forever."

President Barack Obama's regulations on the banking, healthcare and other sectors aren't helping either.

Uncertainty hampers demand and investing and is killing recovery.

"And fourth and I think most importantly, there's a lot of concern on the part of the public with the direction the country has taken under the Obama administration, and I think that uncertainty will keep going until the fall elections," Ross says.

Turning to Europe, Ross says the U.S. banking system is fairly well insulated should Greece default and exit the eurozone, which could send shockwaves to financial systems everywhere.

U.S. money markets may feel some heat should the European debt crisis intensify, but the overall banking system won't experience serious contagion.

"There's relatively little direct exposure of U.S. banks to Europe. Where there is some exposure is money-fund exposure, but that's relatively short in duration and keeps coming down," Ross says.

"I don't think that our banking system or our overall financial system will be terribly impacted, especially not by Greece."

Greece will elect a new parliament on June 17, and polls show the leftist Syriza political party may sweep enough politicians into power to form a coalition government that would oppose austerity measures such as public-sector layoffs and tax hikes.

Previous Greek administrations have agreed to painful belt-tightening measures in exchange for bailout funding, but widespread anger has ensued.

Supporters of austerity say pain today will lead to a better financial tomorrow for Greece, while critics say the measures have obliterated growth, exacerbated recession and aren't doing much to improve the economy.

Fears persist that a Greek default on its debts and exit from the eurozone may prompt the larger Spain to follow suit.

The world can handle a Greek abandonment of the euro, Ross says, as the economy is rather small.

But Europe should do all it can to keep Spain in the eurozone.

"Frankly my own hope is that the negative party in Greece wins and that the EU kicks them out," Ross says.

"I think it's the only way to clear the air, and I think it would do relatively little damage to the rest of Europe."

Greece would suffer dearly, and that could serve as an example to indebted countries like Spain, Portugal and Italy.

"Tremendous chaos in Greece, and therefore nobody would ever again want to join Greece," Ross says.

Turning to investing, Ross says natural gas prices are due to rise and urged the Obama administration to do more to foster investment in the energy.

"The U.S. could become a very major net exporter of natural gas. That would do wonders for our balance of payments, it would do wonders for employment, it would probably be the single most powerful economic stimulus, and I'm very disappointed that Obama has said no more approvals until after the election."

Natural gas prices are hovering at a $2.39 per million British thermal units, which is very low, but prices will rise now that investments are on hold due to a lack of profitability.

"I think we have seen the bottom of the market because production has been cut back."

Smaller U.S. banks will serve as good investments as well since they won't be burdened by new regulations like their larger counterparts.

"The regulatory environment has changed. The government has put in tiers of regulation, one is for banks below $15 billion in total size and second and a more severe one is for banks between $15 billion and $50 billion, and then the most severe is for banks over $50 billion," Ross says.

"We think the sweet spot will be the ones under $15 billion."

Other high-profile leaders have warned the U.S. is facing recession, including former President Bill Clinton, who says the country is likely in one already.

A combination of events could take place later this year and seriously derail the economy.

The Bush tax cuts and other tax holidays are due to expire at the end of 2012 alongside extended unemployment benefits.

At the same time, automatic spending cuts are set to kick in, and the combination of expiring tax cuts and automatic spending cuts kicking in — widely known as a "fiscal cliff" — could siphon hundreds of billions of dollars out of the economy and exacerbate the present downturn.

"What I think we need to do is find some way to avoid the fiscal cliff, to avoid doing anything that would contract the economy now, and then deal with what's necessary in the long term debt-reduction plans as soon as they can, which presumably would be after the election," Clinton tells CNBC.

Lawmakers need to compromise with President Barack Obama, and all sides need to agree to keep tax cuts and spending structures in play now and make sure growth returns and then tackle deficits.

Hopefully that's what they'll do.

"They will probably have to put everything off until early next year," Clinton says.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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Thursday, 07 June 2012 12:16 PM
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