Tags: Biggs | Risk | Global | Recession

Barton Biggs: We’re at Risk of ‘Catastrophic’ Global Recession

By    |   Thursday, 27 Oct 2011 02:50 PM

Barton Biggs, managing partner of hedge fund firm Traxis Partners, says the world is threatened by a "catastrophic" recession while European leaders are trying to impose austerity – mostly on other European nations – as a way to escape the continent’s debt crisis.

But Biggs says that’s not the way to go. “In general, I think austerity is a big mistake,” he tells Yahoo.

“We’re threatened with a global double-dip recession, which I think would be catastrophic for the world and social order. We’ve got to have fiscal stimulus to get out of it, and then we can deal with other issues.”

In the United States, Biggs says the congressional supercommittee on deficit reduction should steer clear of austerity too.
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Instead, it must raise the Social Security and Medicare eligibility age (now 62 for Social Security and 65 for Medicare), cut defense spending to 2.5 percent of GDP from 5 percent of GDP, and raise taxes on the top 1 percent of wealthy Americans, he says.

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Barton Biggs
(file photo)
Biggs scoffs at the notion of a flat tax, seeing it simply as a regressive tax on the poor. The idea of a flat tax is appealing in its simplicity. “But it’s crazy,” Biggs says.

“Is that the right thing to do to Americans after tough times, where the lower and middle classes haven’t shared in the prosperity – put a flat tax on them that will raise their taxes? You’re raising taxes on the poor and lowering them on the rich. It’s nuts.”

Discussing the Occupy Wall Street movement, Biggs says the protestors are justified in their opposition to excessive compensation in the financial services industry.

“Never has so much been paid to so many for so little,” he says, playing on the words of legendary British Prime Minister Winston Churchill.

“The investment management industry hasn’t delivered super performance, . . . yet their people are getting paid a lot of money. That’s all part of the anger against Wall Street.”

Outrageous pay in the financial sector actually threatens free market capitalism, which doesn’t work when compensation for one segment of the economy is so far out of whack from the others, Biggs says.

Wall Street pay will eventually come down, Biggs says. “I advise my grandchildren to be engineers,” he says, emphasizing that he’s serious.

“If they want to get rich, that’s the place to do it, not fussing around with the stock market.”

Yale economist Robert Shiller agrees with Biggs on the need for fiscal stimulus.

“There are two facts about our current economic situation that can no longer be denied,” Shiller writes in The New Republic.

“Our economy is in desperate need of government stimulus, and our political system won’t abide any increase in our national deficit.”

The solution is to combine spending increases with tax increases. But that idea won’t fly far with Republicans, he acknowledges.

“Their resistance might be softened if they were made aware that a balanced-budget stimulus would not lower average after-tax income,” Shiller writes. “Every dollar of increased taxes could go toward giving someone extra income.”

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Barton Biggs, managing partner of hedge fund firm Traxis Partners, says the world is threatened by a catastrophic recession while European leaders are trying to impose austerity mostly on other European nations as a way to escape the continent s debt crisis. But...
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2011-50-27
Thursday, 27 Oct 2011 02:50 PM
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