BB&T head speaks at forum

Recovery hinges upon change in Congress, King says



By spring the economy will be on the right track, but only if next month's midterm elections produce a change in Congress, BB&T Corp. Chairman and CEO Kelly King told Knoxville business leaders on Friday.

Speaking at the inaugural Knoxville Economics Forum breakfast, King said he doesn't care if voters choose Republicans or Democrats but the "fundamentally socialist" attitude that now controls Congress must be changed for the economy to fully recover.

Washington gridlock would be preferable to preserving the status quo, King told about 100 Knoxville area bankers, accountants, construction industry representatives, educators and others who met at Club LeConte.

A change in Congress would bring an immediate "boost of confidence" for business owners who still feel the pain of recession and are uncertain how contentious issues such as the future of taxes and health care reform will affect their companies, King said.

Remove that uncertainty, and businesses will start spending again and the economy will move forward, said King, who also is a director of the Federal Reserve Bank of Richmond, Va.

In a 30-minute talk followed by a few questions from the audience, King touched on a wide range of economic issues.

Highlights from his remarks:

- Deflation won't be the problem that some predict, but two years from now the talk will be about inflation and higher interest rates. "In a weird sort of way" the economy needs a measure of inflation to restore prices that were deflated during the recession, particularly in the real estate market.

- The federal deficit - $1.3 trillion for the just completed budget year - is too high and "will bankrupt the country" unless it is significantly reduced. However, the public must accept that slashing the deficit will require cutting government spending, which means reduced government services.

- A flat rate tax of 20 percent should replace the current tax system, but benefits such as Social Security and Medicare should be taxed.

- In the wake of the financial crisis, passage of the Troubled Asset Relief Program was the right thing to do to ease public fear that the financial system was on the verge of collapse. However, most of the banks didn't want to take bailout money and are paying it back as quickly as they can.

- The housing recovery continues to struggle but there are signs of a turnaround. Savvy investors are getting back into real estate in anticipation of a surge in home buying in the spring.

- The Southeast economy will recover faster than other parts of the country because of the region's relatively low labor and land costs and a business-friendly climate.

The nonpartisan Knoxville Economics Forum was formed this year by the Department of Economics at the University of Tennessee to provide a platform for discussing economic policy. Membership is open to anyone interested in economic issues.

Business writer Roger Harris may be reached at 865-342-6342.

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