Highlights from Part 1 of the 2010 Barron’s Roundtable

For as long as I have been reading Barron’s they have published a roundup with various professional investors every January. I haven’t always read every roundup but I have to say that the last couple of years have been interesting. Here are some of the highlights from Part 1 of the roundup (there are 3 parts).

Talking about the TARP stimulus…

Scott Black: Nonresidential construction should have come back under the stimulus program, but it didn’t. The government budgeted $787 billion, including $40 billion for infrastructure, and yet very little of it has been spent. According to the trade associations, more than $2 trillion of roads and bridges need to be built. The [Franklin D.] Roosevelt administration hit the ground running in 1933. It thought jobs were the best social policy. President Obama, instead of pursuing both health-care reform and cap-and-trade legislation, should have been putting Americans back to work.

Regarding Ben Bernanke…

Marc Faber: He has been a catastrophe for the U.S. He wasn’t responsible for the Nasdaq bubble, but he was responsible for the housing and credit bubbles that followed. Anyone who owns natural resources around the world should send him a big thank-you note, however, because as a result of the credit bubble, the U.S. overconsumed, shifting wealth, capital spending and employment to emerging markets. And as those markets kept growing, they drove commodity prices higher.


Faber: Listening to all of you, I have come to the conclusion that we are all doomed. The Fed and certain academics in the U.S. don’t understand the instability brought about by excessive credit growth and artificially low interest rates. In a 7,000-word article in the New York Times several months ago, entitled “How Did Economists Get It So Wrong?,” Paul Krugman [the economist and Princeton professor] nowhere mentions that excessive credit growth or leverage was the cause of monetary instability and brought about the financial crisis. In a Jan. 3 speech in which Mr. Bernanke talked about monetary policy and house-price inflation, he never once mentioned excessive credit growth. The Fed has learned precious little and will keep interest rates at zero forever. Even if it raises rates, they will be below zero in real terms. If I had been a professor, I would have let Mr. Bernanke pass his exams, but I would have told him never to become a central banker.

Faber: That is why we are all doomed. The deficit will be above a trillion dollars a year as far as the eye can see. One day, Mr. Bernanke or whoever is at the Fed will have to increase short-term interest rates. When that happens, America’s interest burden will go up dramatically. Interest payments could go to 35% of tax revenue in 10 years’ time, but that is an optimistic assumption. I’m inclined to think 50% of tax revenue will go toward interest payments on government debt in 10 years. Then you are bankrupt. There is only one way out — the Zimbabwe way. You will have to print and print and print.

Needless to say, the first part of this week’s roundup was troubling. There’s simply not a lot to be optimistic about as far as our economy is concerned.

This quote from Faber regarding consumption really stuck out to me. In fact, I interupted my wife’s reading and read it out loud to her.

Faber: Jobs lead to consumption, but what leads to jobs? Capital spending. For the past 25 years, policies in the U.S. have been driven by the desire to stimulate consumption instead of capital formation. And capital formation isn’t just building factories. It is education, research and development, infrastructure and company plants and equipment.

He’s right. I have been wondering about this myself. Americans are saving money or at least paying off debts. There’s little money to spur consumption.

6 thoughts on “Highlights from Part 1 of the 2010 Barron’s Roundtable”

  1. … there is hope, but not for us. We are indeed doomed to severe economic decline in America.

    Your Potomac politicians have already spent your life-savings… and those of your children & grand children. It didn’t happen overnight, but those who saw it coming were shouted down and marginalized as fools.

    There are Trillion Dollar+ Federal Budget deficits from now to forever. Inflation (Dollar debasement) is the only way out for the politicians. Your life-savings won’t buy a candy bar …ten years from now.

  2. BG,

    That may be true but can you argue with anything he says? He does make some good points.

    I don’t like to be a pessimist but I’m not liking the way things look either.

  3. JLP,

    It’s great to see you post some writing from Faber. He’s not 100% correct all the time, but he’s a lot closer and more realistic than most other economists.

    Another great read is David Rosenberg.

    And my all-time favorite is Michael Shedlock aka Mish. I know I’ve posted links to his site numerous times, and for good reason. The guy is as level-headed as they come; he doesn’t favor one political party either, but does point out whenever anyone make bad decisions (from a macro-economic perspective).

  4. JLP) I think we are on the right track. Americans are paying down debt faster than they have in 40+ years. Things are moving in the right direction finally. So all of his arguments about ‘excessive-credit’ growth are mute, since we are no longer growing credit but reducing it (at a household level). I think this crisis is/will be so painful that we won’t have to worry about excess credit for a long, long time.

    As for the massive deficit, it worries me too — but how does a 35% interest burden for the US stack up to the rest of the industrialized world? Also, remember, the largest holder of US debt is the US government itself (such as inside the Social Security trust fund). It’s more likely we’d default on the interest payments on those bonds first (if we ever default on anything).

    But, in general, we are moving in the right direction, unlike the past 10 years where we had negative savings rates. If only we can tame government spending, everything would be perfect. Wasting money on the ‘road-to-nowhere’ (that was actually built in Alaska) is not a good long-term strategy when we have interstate bridges collapsing.

    I tend to agree more with Scott Black and should have some FDR-style infrastructure spending (if we are to have any spending at all), which would create jobs.

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