It was a breathtaking amount of wealth destruction for one day. If the late Friday downgrade of U.S. debt by Standard and Poor's was two by four to the head the market drop that followed was a blow to the gut.
Mayor Michael Bloomberg says that the stock market sell-off set into motion by the downgrade of the federal government's credit rating will likely have local consequences.
But unlike the Obama Administration, the mayor did not want to shoot the messenger and attack S&P. Mayor Bloomberg said the downgrade rightly faulted what the credit rating agency called the "dysfunctional" beltway debate over raising the debt ceiling.
"Friday's decision by one of the three major rating agencies to downgrade the credit worthiness of the United States of America was really a damning indictment of how bad things have really gotten in Washington," said the mayor, clearly vexed. "But unfortunately Standard and Poor's hit it right on the nose."
Bloomberg could barely contain his outrage at what he believed was a self-inflicted wound to the nation's economy at a time when the recovery was already sputtering.
"I think it is fair to say we have gotten a two month civic lesson on how to talk economy down, how to undermine consumer and investor confidence, and how to destabilize the stockmarket," Bloomberg told reporters at a public school test results event. "Washington couldn't have done any of those things better; they have done more to harm the economy over the last two months than they have have done to help it, and that's got to change."
Bloomberg said the stock slide set into the motion by the S&P downgrade could both reduce city tax revenues as well as force the city to pay more into its municipal pension funds to make up for the market losses.
The market sell-off, combined with debt issues in Europe, had local business boosters worried about the prospects of a double dip recession.
Mark Jaffee is the CEO of the Greater New York Chamber of Commerce. He says both Washington and the state need to focus on job creation. Jaffee says rather than just extending unemployment benefits again, officials should pass that money onto businesses that will hire the unemployed.
"People who traditionally collect unemployment checks should be hired, mentored and trained" with that unemployment money going to the companies that "keep them on the payroll fior three months than six months and than a year," said Jaffee in a phone interview.
Analysts say the inability of the economy to generate jobs has helped to stall the recovery. Some 44 percent of the nation's almost 14 million unemployed Americans have been out of work for more than six months. As of June, New York State's unemployment rate was 8 percent while neighboring New Jersey's was 9.5 percent.
Philip Kirschner is president of the New Jersey's Business and Industry Association, which represents state businesses that employ about one million workers, a third of the state's private work force. He says NJ businesses are still dealing with a lack of confidence dating back to the 2008 meltdown.
"It has been a roller coaster," Kirschner said. "We had actually had some very good months in the beginning of the year and part of the spring, and then it went back to the way it had been last year. Now with uncertainty overseas and some of the the dysfunctional actions of our Congress, people people are sort of scratching their heads not knowing what to make of the economy."
Kirschner says while the federal government has been hobbled by gridlock, bipartisan cooperation in Trenton between Governor Christie and state democratic lawmakers in Trenton on things such as public pension reform have helped improve the state's business climate. The state has seen job growth in the leisure and hospitality industries as well as businesses services but continues to looe thousands of manufacturing jobs.
Both Jaffee and Kirschner say that their members, even those with stellar business credit, are having a hard time getting access to the capital they need to expand their businesses. Jaffee says that the slide in residential property values has made difficult the avenue of taking a loan against their home to get capital for their business, something many entrepreneurs have used in the past.
State and municipal finance experts say the downgrade may not necessarily drive up local public borrowing costs. But they are concerned the dysfunction it represents is undermining the confidence of small and mid-size businesses.
"People want to get some sense of security going forward that things are going to get better, not worse, in order to make those investments," says Charles Brecher, research director for the New York-based Citizens Budget Commission. "We still seem to be in a period where there is a possibility things stay on a downward track."
According to Brecher, in the first months of Governor Andrew Cuomo's tenure, the governor and the state legislature have started to take on the kind of structural budget issues that Washington has struggled to confront. Brecher says budget pressure will continue to be felt in Albany as the Federal government pulls back its fiscal support of state and local governments.
Yet ironically as local, county, and state governments individually try to downsize by cutting their payrolls, that maneuver in the aggregate maybe helping to further slow the recovery.
Jon Shure, the director of the Center for Budget and Policy Priorities says that since the summer of 2008, more than 500,000 local, county and state workers have been laid off. "And at a time the private sector is faltering it only shows how important state and local government employment is to keeping the economy moving and to drive consumer demand," said Shure.