SALT 2015: A Global Macroeconomic Forecast Hosted By Steve Forbes
This first panel for SALT 2015 consisted of moderator Steve Forbes with panelists Mohammed El-Erian, Robert Nardelli, George Papandreou, Peter Schiff and Gene Sperling.
The conversation was started with Forbes asking PM Papandreou about Greece and austerity measures. Forbes said, “it seems that austerity falls disproportionately on the private sector.” The prime minister said that the middle class is being suffocated. “The European Union must get off their high horses.” The current measures are making it difficult for Greece to compete with other eurozone countries. In his statement, he was clear that the issue is with the structure of the eurozone.
His solution is not to leave the eurozone though. “Leaving the eurozone would be a huge disaster for the Greek people.”
Forbes turned the conversation to Gene Sperling, Director of the National Economic Council and Assistant to the President for Economic Policy from 2011 to 2014. Sperling said, “There is pent up demand. If you don’t get a sharp V shaped recovery, you see scarring on the labor force. The challenge in the United States is creating demand on the front end while dealing with the long run structural issues.
“In the United States, easy monetary policy should be used to front end infrastructure spending.”
The conversation turned towards Peter Schiff who quickly dominated the discussion and garnered a positive response from the audience with claps and an occasional cheer.
“The 2008 crisis was created by the Federal Reserve. Instead of learning from mistakes, the Fed simply repeated them in a much grander scale. They kept interest rates low.” The next bubble is on the horizon according to Schiff, “The Fed has no intention of raising rates. Not in June, not in September. I think they’re afraid of the next bubble. The Fed has no interest or ability to raise rates.”
Continuing, he said that the, “Fed is waiting for an excuse to launch QE4. It might not be this year, but it’s coming. Being long the dollar is like being long subprime in 2006.”
He looked at Gene, who spoke briefly of jobs and the labor force and moved onto a discussion of jobs. “The only reason kids with college degrees is because they’re waiting tables. They used to say if you don’t want to work at McDonald's, get a degree. Now, if you want a job at McDonald's, you have to get a degree.”
Mohamed El-Erian speaks up, “QE was a painkiller we took too much of. The big problem we face is liquidity.” According to El-Erian, financial risk taking is extremely high and the economic risk taking is very low. The model the world has grown accustomed to is shifting and different than it was in the past. The world is diverging and it’s evident in the way the central banks are behaving. “The United States is taking its foot off the accelerator while the EU is pushing the pedal down.”
He believes that the most important thing investors can do in the diverging world is have options to be able to change direction.
Robert Nardelli gave his opinion from the perspective of being inside and looking out. Speaking of GE Capital, he said the sale was to be able to monetize the division and stop paying hundreds of millions in on-going compliance and regulation costs. GE will reinvest the proceeds in its other growing businesses, medicine, aviation and power.
El-Erian eloquently summed up the feel of the panel by saying, “when I listen to the panel, we have this idea that governments are still in control. I wonder whether we are living in a world where governments control less than they think. I wonder if government still has control.”
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