Robert Rubin has endured more bear markets and economic crises than he cares to remember during his tenures as managing partner of Goldman Sachs, secretary of the Treasury and chairman of Citigroup. So even the most bullish investor might want to pause when Rubin warns that he’s more worried by today’s fiscal environment than by any other in his lifetime. True, investors should always hope for the best, said a grim Rubin to an audience at last month’s TradeTech Forum in New York. “But it is absolutely prudent that we prepare for the worst.” Rubin is a tough guy to nail down. To conservatives, he’ll always be a shill for the economic policies of the Clinton administration. But to liberals, he represents the Wall Street establishment, that member of the so-called 1 percent who reaped a huge payday from Citigroup even as the bank was taking on subprime exposures that would nearly kill the institution.
At TradeTech, Rubin, a loyal Democrat, told the audience that with the Bush-era tax cuts and the payroll tax holiday expiring, and with planned “sequestration” cuts to discretionary spending by the federal government, GDP could drop by as much as 5 percent. “America is at a stark crossroads with respect to the future of our economy,” he said.
The solution, he said, will come more from Washington than from Wall Street: A potent combination of political will and the legislative agenda must come into alignment and rejuvenate Washington in order to achieve any goals. According to Rubin, partisanship in Congress has deflated the willingness to compromise, and a lack of preventative action means future strategy will be responding to fiscal crises rather than planning to avoid them.
Most important, he said, is a move from the U.S.’s current “dangerous” fiscal trajectory to a more sound condition. Maintaining public investment in areas critical for competitiveness such as education, scientific research and infrastructure is integral for success, as is reforming key sectors of the economy like energy and health care. “The U.S. has the pieces to succeed,” Rubin said. “The dynamism of our culture, the willingness to take entrepreneurial risks, the flexibility of our labor and capital markets, and our natural resources and demographics best Europe, China and Japan.”
Rubin said Europe has only slightly better than a 50/50 chance of reaching the sort of economic stability that the Continent desperately needs. “European leaders allow the crisis to go to the precipice, then they act, then they pull back, then they feel better, then it goes right back to precipice again, then they keep repeating it,” he said. “Markets can’t handle this volatility.
