Tags: jacob | wolinsky | economy | global | us | politicians

Capitol Hill Needs Rude Awakening About Spending

By    |   Thursday, 14 Oct 2010 12:44 PM

I recently attended the Value Investing Congress and had the privilege of hearing from some of the greatest investors of our time.

I expected the conference to mostly focus on specific stock recommendations, since most of the speakers don’t take macroeconomic conditions into their investment decisions.

It was surprising how much talk there was about the United States and global economies. One of the main themes of the congress was the failure of Keynesian economics to revive the U.S. and global economies.

One of the speakers who had some very interesting thoughts on the topic was Michael Lewitt. Lewitt is the author of “The Death of Capital” and the editor of “The HCM Market Letter.” He also is the president of Harch Capital Management LLC, a money management firm which has managed billions of dollars of private-equity, high-yield bond and bank-loan assets for a variety of institutional clients and specializes in distressed corporate debt.

Lewitt quoted noted economist Nassim Taleb when referring to government debt. He compared it to sleeping on a train track. You never know when the train will come but when it does, you might not wake up. The point is that the government’s massive spending will cause a catastrophe sometime in the future even though it is impossible to know exactly when this will occur.

Lewitt slammed liberal economist and New York Times columnist Paul Krugman, who recently called for the government to print money indiscriminately to revive the economy.

Lewitt was highly critical of QE2, also known as the second round of expected quantitative easing by the Federal Reserve.

Lewitt believes that such easing creates an artificial stimulation of the economy and doesn’t help job creation.

In addition, he slammed the low artificial interest rates enacted by Federal Reserve Chairman Ben Bernanke, which he said helps no one except speculators.

Lewitt believes the solution is sound, countercyclical monetary, fiscal, and tax policies.

To hear these words receive rousing applause in New York City — probably the heart of liberal America — really surprised me.

People, regardless of party affiliation, apparently are finally waking up to the dangerous policies being enacted by the Federal Reserve and President Barack Obama, with the help of Congress.

Instead of constant debates about whether to extend the Bush-era tax cuts or not, people are starting to realize the main problem is entitlement spending, not taxes.

At the rate we are headed — no matter how high taxes are — government expenditures will start to exceed any amount of revenue the government could possibly raise from taxes.

What is really needed is serious reform in four areas that are growing wildly out of control: Medicare, Medicaid, Social Security and pensions. Without these serious issues being addressed, we are headed for a situation similar to what happened in Greece.

It seems as though the American people have finally woken up.

I wonder what it will take to roust the politicians from their blissful ignorance.

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Wolinsky
I recently attended the Value Investing Congress and had the privilege of hearing from some of the greatest investors of our time. I expected the conference to mostly focus on specific stock recommendations, since most of the speakers don t take macroeconomic conditions...
jacob,wolinsky,economy,global,us,politicians
488
2010-44-14
Thursday, 14 Oct 2010 12:44 PM
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