By Scott Robertson
Craig T. Bouchard has managed his way through the global financial crisis and learned a few lessons along the way. Among them are that more such crises can be expected in the future.
Bouchard, president and co-founder of the former Chicago-based Esmark Inc., warned executives attending Chicago’s Association for Corporate Growth Forum on Friday that new risks are percolating below the surface of the U.S. economy. Some of those risks include significantly higher interest rates, re-inflation of commodity prices, a further weakening of the U.S. dollar and a coming rush by foreign companies to purchase equity in industries potentially critical to national defense, most notably steel.
Bouchard, co-author of a new book, America for Sale: How the Foreign Pack Circled and Devoured Esmark, has been through this before. He and his brother, James, founded and spearheaded the growth of Esmark Inc. from a steel service center company into one that eventually acquired Wheeling-Pittsburgh Steel Corp. before it was sold to Russian steel giant OAO Severstal.
The story of the creation and growth of Esmark and the back-room battles that led up to a bidding war for the company between Severstal and India’s Essar Steel are described in the book, along with the role of the United Steelworkers union and Ron Bloom in the deals; an in-depth discussion of how deals are done; and what issues face the U.S. and global economies in years to come. Bloom is now President Obama’s manufacturing czar and heads his Auto Task Force.
Bouchard cautioned attendees at the Chicago forum on the impact a number of factors will have on the U.S. economy post-recession.
“The chaos currently sweeping the economic and political foundation of the United States is facilitating the risk of America losing control of key commodity industries, including the steel industry,” Bouchard said. “While the recession has slowed M&A (merger and acquisition) activity dramatically, our eventual recovery combined with a very weak dollar will facilitate a flood of foreign capital into the U.S. industrial sector.”
Bouchard and his co-author, Old Dominion University professor and economist James V. Koch, say the growing deficits and dramatic growth of the monetary supply base in the U.S. include unrecognized consequences.
“2010 will see an inflationary spike beyond current market expectations, accompanied by a significant weakening of the dollar from current levels,” Bouchard said.
He noted there is a good case to be made that interest rates on long-term government debt will exceed 10 percent by 2010 and that possibility, combined with a lack of available bank credit, will hinder the recovery of the real estate, retail and manufacturing sectors.
In his address, Bouchard outlined how the U.S. steel manufacturing base, which he described as a critical component to national defense, already is majority-owned by foreign companies. Chinese and Japanese concerns, he said, own more than $3 trillion of U.S. Treasury securities, leaving the U.S. in a very vulnerable position during any negotiations with those countries. Bouchard said that if the Chinese and Japanese stop buying U.S. securities, interest rates will skyrocket.
He said he expects crude oil prices to return to more than $100 per barrel during 2010, further complicating any efforts by the Federal Reserve and Treasury Department to extract the U.S. from the aftershock of the federal stimulus programs.
Koch, meanwhile, believes the Committee on Foreign Investments in the United States (CFIUS), the U.S. government body that oversees national security implications of foreign investments in U.S. companies, “has been a rubber stamp,” with applications for foreign purchase of U.S. companies having grown dramatically since 2005.
“Of the last 300 applications made by foreign entities, only a handful have ever been reviewed,” Koch said. “CFIUS simply can’t seem to say no.”