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Reuters: Former U.S. Treasury Secretary Robert Rubin has warned that spiraling budget deficits have created a "fiscal morass" that might threaten the U.S. economy's longer-term health as baby boomers approach retirement.
Rubin, now member of the Office of the Chairman at Citigroup Inc. (C: Research, Estimates), said the budget has swung from a projected 10-year surplus of $5.6 trillion in 2001 to a projected 10-year deficit that might reach $5.5 trillion...He said he would have done some things differently after the Sept. 11 attacks had he still been in the Cabinet.
"I would have said, Mr. President, ... it's appropriate to have short-term fiscal stimulus, but I would put in place temporary measures, not long-term measures," he said. Long-term measures are going to have exactly the effects we're now having, unfortunately."
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http://money.cnn.com/2004/06/11/news/economy/rubin_warning.reut/index.htmRubin warns of spiraling deficits
Former Treasury Secretary says widening gap might threaten the economy in the long run.
June 11, 2004: 7:52 AM EDT
NEW YORK (Reuters) - Former U.S. Treasury Secretary Robert Rubin has warned that spiraling budget deficits have created a "fiscal morass" that might threaten the U.S. economy's longer-term health as baby boomers approach retirement.
Rubin, now member of the Office of the Chairman at Citigroup Inc. (C: Research, Estimates), said the budget has swung from a projected 10-year surplus of $5.6 trillion in 2001 to a projected 10-year deficit that might reach $5.5 trillion.
After methodology changes, he said that amounts to a $9 trillion swing, with 2001 and 2003 tax cuts expected to cost $4 trillion over the next 10 years.
"The deficits of the magnitude we're now talking about would have a substantial adverse impact on interest rates, productivity and our economy," he said in a speech Thursday.
"The fiscal morass that we have today is a more serious problem than the unsound fiscal conditions of the 1980s," he added. This is in part because of higher deficits, lower personal savings, high consumer debt, and higher expected entitlement payouts as Americans age, he said.
At some point, Rubin said, markets might fear that deficits will cause "fiscal disarray" or that the government won't show fiscal discipline, leading to "sharply higher" interest rates.
Rubin was Treasury Secretary from 1995 to 1999 under the administration of Bill Clinton, a Democrat, and is widely credited with helping to stem financial crises in Mexico, Asia and Russia. He spoke at the New York Society of Security Analysts' annual dinner.
Risks
Though U.S. policies are criticized in many parts of the world, Rubin said "the global community will almost certainly not move on major (economic) issues" without U.S. leadership.
Still, he said the United States cannot provide that leadership "unless it works in true cooperative partnership" with other countries. Europe and Japan, he said, are not strong enough "to provide independent energy to the global economy."
Meanwhile, he said investors focus too much on short-term events such as quarterly corporate earnings, and too little on unquantifiable risk. He said this includes such geopolitical risks as political situations in Iraq, North Korea and Pakistan, terrorism and nuclear proliferation.
"We are far, far from having knowledge of the uncertainty and the complexity of these issues," he said.
Other worrisome issues, he said, include rising health care costs and oil prices, the environment and global poverty.
Rubin's investments
Rubin, who has lived during 12 presidencies starting with Franklin Roosevelt's, said the 2004 Presidential election "is in some respects the most important in my own lifetime."
He said he would have done some things differently after the Sept. 11 attacks had he still been in the Cabinet.
"I would have said, Mr. President, ... it's appropriate to have short-term fiscal stimulus, but I would put in place temporary measures, not long-term measures," he said. Long-term measures are going to have exactly the effects we're now having, unfortunately."
Rubin said he has put some of his own money in "long-short" investments that involve buying some securities and selling others, some in private equity, some in "plain old equities," and "enough ... in some place that is really safe. I'm talking about short-term something-or-others."
"For all I know," he said to laughter, "none of these (bad) things will ever happen, and all of the bad people in the world will become good, and maybe (Federal Reserve Chairman Alan) Greenspan is wrong and there is a free lunch."
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