Three financial experts gave an audience at the Aspen Ideas Festival wildly different views on whether the financial crisis is really over.
David Stockman, budget director for former President Ronald Reagan, on Friday told the crowd to find a cabin in the mountains, stock it with canned beans and bottled water and prepare for even tougher times. The financial crisis will get worse instead of better, said Stockman, who labeled himself “right-wing libertarian.” He was only half-joking.
“We’re not going to get out of this for years and years,” Stockman said.
Chris Hyzy, a chief investment officer with a subsidiary of Bank of America, called himself an optimist and said he sees slow but steady annual economic growth returning starting in 2012. The U.S. has moved from recession to recovery — now it’s going to require patience to move from recovery to expansion, Hyzy said.
In between was Roger Ferguson, a member of President Barack Obama’s Economic Recovery Advisory Board, who said he is in the “sensible middle” in economic policy.
Ferguson said he sees a “low probability of a double-dip recession” and a “gradual but volatile improvement.”
The economy was one of the major areas of discussion at the sixth annual Aspen Ideas Festival, which ended Sunday. In the opening presentation July 5, Harvard professor and noted contrarian Niall Ferguson, no relation to Roger Ferguson, claimed the recession likely marks the end of the American “empire.”
Stockman shared a similar vision of doom and gloom. We are not experiencing a normal cycle of recession and recovery because we are beyond the point of such normal cycles, he claimed.
Instead we’re at the end of a “debt super cycle” marked by a 30-year spree of running up government and individual debt, he said. He fears the country has dug a hole it cannot crawl out of.
As proof, Stockman said the U.S. maintained “the golden constant” — a steady ratio of public and private debt to gross domestic product — for 110 years, from 1870 to 1980. In the past 30 years, the debt has soared.
If the golden constant were in place today, the country would have about $23 trillion in public and private debt, Stockman said. Instead it has $53 trillion.
“We’ve been on the wrong track since 1980,” Stockman said. He was critical of Obama’s stimulus spending, which just adds to the problem.
Hyzy countered that he sees a world coming into balance thanks to the biggest global shift most people will witness in their lifetimes. Emerging markets, particularly in Asia, will create a middle class hungry for goods. The savings rate of countries such as China will drop, and consumer spending will soar. That will fuel U.S. manufacturing.
Contrary to Stockman, Hyzy credited the Federal Reserve for pumping money into the economy to help ease the recession. “I think we’re fortunate the Fed did what they did,” he said.
Stockman drew the biggest applause from many in the crowd of several hundred onlookers when he slammed federal government, the central bank and Wall Street.
“I’m all for trust and confidence, but the problem is the great institutions of this country aren’t worthy of our trust and confidence,” Stockman said.
By Scott Condon – The Aspen Times – denverpost.com
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