HERE WE GO AGAIN
Barron's this weekend featured an interview with Robert Albertson, a veteran banking analyst on Wall Street (Disclosure: I had the pleasure of working with Robert for many years at our former firm, Goldman Sachs).
His thoughts on the financial markets are worth reading, especially as President Obama signs the trillion dollar stimulus package in Denver today. Here's the section from the interview that came to mind as one sees the images from Denver:
I'm seeing very odd interpretations from the government, in particular about what we need. The government isn't thinking about deleveraging. The government is talking about jump-starting consumer credit. I hear the word jump-start all the time. It is such a bad word. Jump-start consumer credit for what? So we can be more indebted?
So what has to be done?
We need to reduce the debt. If you jumpstart credit, you are just going to prolong the problem and deepen it. What we need now is the patience to de-lever. We don't need the stimulus package. We need a savings package, but that couldn't be further from the goals at the moment. The mistake is that the government believes credit drives the economy, instead of the economy driving credit. They have got that backward, and this is a very dangerous time to be misfiring..."
"...What is the biggest danger of the stimulus plan?
That it will be a false start. It will be priming a pump that still has an empty well underneath. It will stop again even harder, and we will be further in debt and have further problems in the financial system from that debt..."
"...It looks like the stimulus package, whatever form it finally takes, will include some tax cuts along with a lot spending.
As I said, there is at least $2.5 trillion that has to come out of consumer spending in order to pay down debt and build savings. If you want to replace that $2.5 trillion with the government, they are only at around $800 billion. No. 2, going back to the economic stimulus of early 2008, we now recognize that the bulk of it wasn't spent; it was saved. So you can split this package any way you want. It isn't going to give the desired effect. It is going to give a false small blip, although it could give us a spike."
The whole piece is worth reading, especially on this historic day.