An Insider Speaks

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Recently by Robert Wenzel: An Inside Look at Global Money Center BankActivities

     

Global insiders are starting to gather in Davos, Switzerland for this week’s World Economic Forum. JPMorgan Chase’s Jamie "Obama’s Favorite Banker" Dimon will be there, as will be Treasury Secretary Geithner.

When attendees arrive and check in, they will be given their badges and a copy of a special Davos magazine, prepared especially for the event. In the magazine will be an article by Robert Rubin. He is an insider’s insider. Participants will read the article. Rubin is so wired in that when insiders think of the people who are operating behind a president, it is names like Rubin’s that come to mind. Jacob Lew the new director of the Office of Management and Budget is connected to Rubin. The old director of OMB, Peter Orszag, was connected to Rubin. The new head of the National Economic Council, Gene Sperling, is connected to Rubin, as was the previous NEC head, Larry Summers. It goes on. Rubin served as Treasury Secretary under Bill Clinton. He was former co-CEO of Goldman Sachs. He is co-Chairman of the Council on Foreign Relations. Got the idea? Insiders will read what he has written.

The first part of the article is about what the United States needs to do to get the economy going. It is a desperate shot taken at the buzzer from beyond half court. Rubin knows this. He is also a Keynesian, so his recommendations call for more spending that he hopes can be reversed in two or three years, once the economy "gets going". It won’t work. The shot will fall short of the rim.

The second part of the article is much more significant. It is the breakdown of what is going wrong in the United States. An abbreviated version of the "Davos Warning" has been printed in FT.

Rubin wrote (my emphasis):

The risks of our fiscal position are serious and multiple. And while these risks become more severe over time as our debt position worsens, all of these either have begun to materialise or could do so in the near term, so we should act now.

What multiple shapes could the crisis take? Rubin writes to the Davos insiders (My emphasis):

To be specific about the risks, deficits could crowd out private investment, which could choke off a private investment recovery. Moreover, the capacity for public investment is already diminishing, and could be exacerbated by growing entitlement costs and mounting interest payments…

Read the rest of the article

2011 Economic Policy Journal

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