With Congress and the White House locked in a stalemate over how to avoid the so-called fiscal cliff — the mass of taxes and cuts set for January — Eastern Iowa bankers have been advising business and personal banking clients to "stay the course."
"I'm telling our business clients to look and see what they've done over the last two years and there's a possibility that they're going to be doing the same for the next two years unless something drastic happens to their industry," said Gary Bartlett, market president of Ohnward Bank & Trust in Cedar Rapids, Marion, Monticello, Baldwin, Cascade and Onslow.
Bartlett said he doesn't see much changing in terms of interest rates, noting the Federal Reserve has said it plans to keep rates low until at least 2014 to stimulate the economy.
"The wild card out there in my estimation is inflation, and that's very hard to measure," Bartlett said. "Everybody is not very worried about it, but if this economy were to turn around and we all of a sudden were to have a 4 percent to 6 percent growth factor, I don't think the Federal Reserve would be able to get their money out of the system fast enough.
"We're going to be facing inflation."
Bartlett said the possibility of sharply higher taxes and the effects of the Patient Protection and Affordable Care Act are serious concerns for many small business owners.
"It's very difficult for them to plan without knowing what the impact will be," Bartlett said. "The only thing we know for sure is who's going to be in charge for the next four years."
Michael Dunn, president of F&M Bank in Cedar Rapids, Anamosa, Manchester and Vadnais Heights, Minn., said he's concerned about the Federal Reserve keeping interest rates low and the level of the national debt continuing to grow.
"The interest rates that we're paying on deposits right now frankly are embarrassing," Dunn said. "There are a lot of people who in the past have lived off their CD income and they can't today. That's what bothers me the most in the short term.
"Long term, what bothers me is the size of the national debt. It appears that taxes are going to go up for some, but I don't think spending is being addressed.
"I don't know how long we can continue to kick the can down the road."
A November survey by the financial information company Sageworks found financial professionals indicating the U.S. national debt was affecting their business clients’ hiring and investment practices.
Sageworks CEO Brian Hamilton believes any plan would be better than the current stalemate.
"You can’t expect businesses to plan for their 2013 and 2014 operations when you throw new policies at them on Dec. 31," Hamilton said.
A recent Federal Deposit Insurance Corp. study found narrow interest margins — the difference between the interest banks charge for loans and how much they pay for deposits — has created a drag on the earnings of the nation's community banks such as F&M Bank and Ohnward Bank & Trust.
Dunn said loan demand is far below normal as the amount of cash looking for good investment income continues to grow.
"It's incredible how much money is out there," he said. "There are places in north central Iowa where only 18 percent of the farmland has a mortgage. Farmers are doing quite well, despite the impact of this year's drought.
"We continue to see farmland values rise to unheard of levels and cash rents are rising across the state. The costs of farm inputs (seed and fertilizer) also are incredibly high."
A lower number of Small Business Administration loans approved for Iowa companies in November also may signal reluctance on the part of business owners to make any expansion plans until more is known about taxes and health care costs. Thirteen more SBA loans were approved in Iowa in November 2011 than in November 2012.
Although small businesses are concerned about taxes and health care expenses in 2013, Dunn said Iowa is better off than other parts of the Midwest and the country.
"Through this last recession, we weathered it fairly well," he said. "We've got unemployment below 5 percent in the state for the first time since 2008."There was some pain felt during the recession, but not nearly as much as we've seen up in the Twin Cities."