Greece's near-bankruptcy, which forced a series of tax increases and austerity cuts in the national budget, sparking strikes and demonstrations, may be a sign of things to come for some U.S. states, said the president and CEO of Forbes, Inc.
On CBS' "The Early Show" this morning, Steve Forbes was asked if the economic troubles of Greece, one of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) which has been facing tough times within the eurozone, presage other PIIGS getting sick and what that may mean for us.
Forbes said he believes the German Parliament will vote to approve the government's contribution to the EU bailout package for Greece, as France did yesterday. But he said it was very important that Greece undergoes systemic reform, and that other nations facing the fallout from Greece's near-bankruptcy must follow suit.
"The thing that on this to watch is not that Greece is going to have to go through austerity, but will they also make systemic reforms, like their tax code which is anti-business, so the economy can get back on its feet? You'll see the same thing in Britain: they know they have to cut back but they have to do it in a way that lets the economy recover?"
"But there's some self-reflection that might be important here as well," said "Early Show" anchor Harry Smith, "because as we look around the country, states like New York, Illinois, California, are looking at mountains of not only debt but deficit."
"Their pension systems are all in major, major deficits," said Forbes. "So we have our Greeces here and there Illinois, California, New York, New Jersey, Michigan and others. And they're going to have to make systemic reforms. We see that across the river in New Jersey major budget cuts, tax cuts to get these economies reformed.
"Everyone has to get their act together. The wake-up call has come."
When asked about yesterday's drop of 1,000 points in a half-hour - predicated some believe on a trader's errant slip of a finger, prompting a domino effect of programmed "sell" orders - Forbes said, "It shows that even in this age of high-technology, you can get absolutely eye-popping glitches in the system. That's exactly what happens when a stock like Accenture goes from $40 to a penny, back to $40 in the flash of an eye. So in that sense there are systemic flaws they'll have to dig out. You can literally do 10,000 trades every second, so they have to figure out what in the world went wrong, 'cause hackers can get in and blow up the system.
"You also have systemic economic fundamentals at work, too, that help bring this thing down," Forbes told Smith.
Despite yesterday's wild ride on Wall Street, Forbes said he believes today's trading will show a mere "hiccup" down, and then "amazingly" end up higher today.
Pointing to Wall Street's 75% rise since March of last years, he called yesterday's at closing of 347 points, after falling about 1,000 "a pause. Not the end of the world."
When asked if he feels the economy is in a state of recovery, Forbes said, "The economy is recovering. It's a weak recovery given the magnitude of what happened in 2008, 2009. It's like a baseball team that was losing all the games. Now they're only losing half the games. Better than losing all of them, but not yet in the World Series."