Inside the 2010 Fiscal Summit

While we were seated in the auditorium of the Reagan International Trade Building for the 2010 Fiscal Summit yesterday, fear and loathing swept the globe.

Today? Not so much. The scare from Greece’s downgrade? It’s so yesterday. The euro has bounced off its one-year low of $1.31. European stocks are up, too.


An index measuring executive and consumer confidence in the 16 euro nations reached its highest level in two years. Right.

Far be it from us to spoil the party, but Greece retains its role as the proverbial “canary in the coal mine” this morning.

The head of the Organization for Economic Cooperation and Development – a body of all of the world’s developed countries – warns sovereign debt is “threatening the stability of the financial system” in the same way Bear Stearns and Lehman did.

“Ultimately, it’s a national sovereignty issue,” former president Bill Clinton said yesterday at the Fiscal Summit. He was referring to the US’ sovereign debt being largely held by oversees banks and investors. “We’re talking about losing control of our own destiny.”

The Fiscal Summit was a perfect example of how Washington works…and doesn’t.

David Walker played host to a well-choreographed media event that included Erskine Bowles and Alan Simpson, the co-chairs of the suicidal National Commission on Fiscal Responsibility and Reform. A keynote discussion with former President Clinton. And conversations with Robert Rubin; Peter Orszag, director of the Office of Management and Budget; Paul Volcker and Alan Greenspan. As well as a number of panel discussions with policy wonks from all over the political spectrum and members of both the House and the Senate.

For a time, we believe we were on C-SPAN sitting a seat behind and two to the left of Alan Greenspan. The camera guy kept getting in our line of sight to the podium because he was so intent on getting the Maestro on film.

Before we get too far into comments made by these guys, let me make a few points. First, we have enough material from the six-hour event to fill a 16-page issue of Apogee, let alone a scant 5 Min. Forecast, so we’re going to keep things light… and spread them out over the news cycle for the next couple of days.

Second, before you write your kind reply to this effect: “Why should we listen to these bozos, they created the crisis…and are presiding over the deficits and debt, the bailouts and the stimulus?”

Let me just say that like it or not, the deficit is real. The debt is real. These guys exist. Further, what they say moves markets. As an investor, you have to be aware of what they’re saying, thinking, planning. You won’t get it from the evening news…as we sadly discovered yesterday (more below).

While we may share your view, we’re taking a “keep your friends close…” attitude on this one. The devil you know is better than the one you don’t. Capice?

Third and last comment, we honestly believe David Walker is genuinely trying to implement viable policy solutions BEFORE the train wreck. Paul Ryan (R-WI), who also sits on the National Commission, said it best: “We’re in the grips of the most predictable financial crisis in human history.”

Granted our beat is personal investment advice. But think of it this way: If David’s successful, our job gets a lot easier. We’ll just need to find the best companies with the bright ideas and flip them to you.

On the other hand, if you think a sovereign debt crisis in Greece is bad, wait until foreign central banks lose confidence in US Treasuries.

Robert Rubin told the audience yesterday he’s more afraid of that possibility than any other thing in his adult life.

“The canary in the coal mine for US Treasuries” is the 10-year note and 30-year bond, Alan Greenspan suggested to the summiteers yesterday. He claims it’s the first thing he checks in the morning when he wakes up. History shows, we paraphrase the bespectacled octogenarian, that when inflation returns to the system, it will happen in a very dramatic fashion.

“Long-term interest rates remain low because the global economy is still emerging from a deep and protracted recession which has caused deflation. That’s going to change eventually. Short-term rates remain depressed because credit risk fear remains. But that’s going to change – it will happen quickly.”

Greenspan went on to say he doesn’t think it will happen until next year, but admitted he doesn’t trust our ability to forecast anything. “Our” being humans.

“From the dawn of history,” Clinton offered by way of an explanation for what’s happening to the United States, and much of the Western World, “once you become successful, you become rigid, more concerned with the present than the future. The constituency of the future is always less than that of the present. We need to get back in the ‘future” business, if we’re going to make it through this mess.

“Older societies are obsessed with security,” he goes on, which makes addressing defense, retirement, health care and energy very difficult and politically untenable tasks, especially in a democracy of 306 million people.

Clinton covered a wide range of subjects: Haiti, Mexican border and drug wars, immigration, state budget deficits, Goldman, financialization of the economy, housing, the VAT tax and more.

When we got back to our humble digs in Baltimore last night following the Summit, we turned on the network news to see how they’d cover it. Not a peep, except for one mention from Diane Sawyer on ABC. She wondered if Clinton was losing weight!

They the station showed a brief clip from the Summit where Clinton was discussing how he’s preparing for Chelsea’s wedding. Clearly, that was the most important take-away from the six hours.

Addison Wiggin
for The Daily Reckoning

The Daily Reckoning