U.S. Rep. Jim Himes, D-Conn., has been a staunch supporter of the Simpson-Bowles proposal to cut trillions of dollars from the nation's debt, and on Thursday warned participants at Deloitte's third annual Hedge Fund Symposium that the alternative to not enacting the recommendations could be catastrophic.
The impact would not be immediate, he told an audience of more than 100 in the investment community at the Greenwich Hyatt, but not adopting serious measures to reduce the $16 trillion debt would create doubt among the international financial markets about the federal government's ability to govern.
Because the alternative is sequestration or an automatic reduction in military spending and spending on discretionary programs with no debate, Himes is optimistic that Congress will act.
"There's a 70 percent possibility that we'll do what we have to do," said Himes, but action may not occur until late spring or early summer of 2013. "When it comes to reducing the budget, it's all ugly stuff."
Prior to Himes' presentation, Jeff Kummer, a director of tax policy at Deloitte, cautioned that sequestration would have a dramatic impact on spending come January, with American consumers' purchasing power seeing severe reductions.
"You're looking at $110 billion in cuts in defense and discretionary programs if nothing is done," said Kummer, part of a panel discussion on financial reform.
The investment community has been impacted by the lack of progress on debt reduction and questions about how taxes on items such as capital gains will change. Among them is David Belmont, chief risk officer of the Commonfund in Wilton.
"We're very concerned about how Congress acts and the impact on the investment community," he said, after hearing Himes' presentation.
The budget impasse has also ruined plans to improve the nation's infrastructure, Himes said.
"If we are going to be globally competitive, we have to have a sound infrastructure," he said.
Himes, who spent 12 years with Goldman Sachs, told the audience that the Dodd-Frank Act, a reform of Wall Steet's regulatory environment that has been attacked by many in the financial community, is still a work in progress.
"Don't think of Dodd-Frank as something we got done and now we can forget about it. We created it in the white-hot emotions of the electorate. It's still evolving," he said. "Dodd-Frank needs to live and evolve. That happens when the tone (in Congress) changes. That's going to involve a lot of trust."
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