DG: David Gregory – Interim Moderator for NBC’s Meet The Press
LS: Larry Summers - Director, National Economic Council
KM: Keith McCullough - CIO, Research Edge LLC
DG: If you have a hole in the economy that’s a at least a trillion, maybe two trillion, don’t you need that stimulus?
LS: David, we have what economists call a multiplier… we surveyed a range of economists, and to a lot of experts both Democrat and Republican… and the President took a balanced point of view between new investments… and also tax cuts, because we recognize we have to help households and businesses to be able to spend.
KM: Backing out the socialist verbiage from the real economic formula of GDP = C +I + G + (ex-im), stimulus means (G), as in government spending, and we should not mistake it for legitimate (I) Investment. Summers knows this – he also sounded like he knows the real (G) number is larger than the proposed $825B. As the market’s expectations for (G) increases, the US Dollar should begin to weaken again (like it is today). Does (G) have a multiplier effect? Sure… but God help us if Obama and Summers are depending on that “range of economists” who missed proactively preparing for this market crash altogether. The only thing worse than one or two “economists” being wrong is a whole room full of them in Washington pandering to a new Administration.
DG: Only $250B worth of stimulus this year (according to Goldman Sachs)… only $250B worth of impact this year, don’t you want more of a jumpstart?
LS: The President has committed through a letter from his OMD Director, Peter Orzag, that ¾ of this $825B program will be spent in the first 18 months… we are doing everything we can … but we aren’t going to rush things to the point of being wasteful… speed is a crucial concern… but these problems aren’t going to be solved that fast. We also have to be mindful of having the right kind of plan that will carry us forward over time.
KM: My math has 0.75% of 825B = $618.75B worth of stimulus being spent in the first 18 months. That’s a big number, and one that could get a lot bigger as the winds begin to blow towards the next election cycle. Transparency and accountability rules are what the President is talking about – let’s see if he can deliver on his rhetoric and print that number, on time. I agree that managing this number reactively is not the patient solution that this country needs – the political pundits and the media want the money spent yesterday, with their crackberry and a coffee on the side – be careful who we are feeding rhetoric to here.
DG: If the size of the package is important… if the deficit is a concern, why not put some of that spending off until later?
LS: David, respectfully, I would disagree with the Washington Post – there are cops being laid off across the country, saving their jobs is saving jobs … its helping the economy, its protecting our neighborhoods… responsibility is integral to the Presidents style of leadership.
KM: In English, this is a big spending Democrat talking – oh baby is he going to spend it, and then some… they won’t worry about the debt until it’s too late. This is the Robert Rubin school of American leverage – ask the folks over at Citigroup or Goldman how that treated them.
DG: Bush tax cuts - why would you want to raise taxes right now? Why not put that expiration date off until say 2013? Why is that a bad idea?
LS: 2013? First it’s a bad idea because we simply can’t afford it! We have a trillion dollar deficit… but understand this, there will be tax cuts for the other 95% of Americans.
KM: This was the funniest question Gregory asked – reminding me that he wasn’t in the area code of being capable of having a real Tim Russert like economic debate – 2013? Even Summers looked at him funny! Then he gave him the obvious answer.
DG: Banking Crisis – $700B has been dedicated, will more money be needed down the road?
LS: we’re gratified that Congress has given the President the authorization he needs to unlock the $700B that the Bush administration worked with congress to create… the Presidents financial recovery program is going to be very different from what we have seen so far – it’s going to emphasize transparency – it’s going to emphasize accountability… perhaps most importantly, the priority has to be getting credit flowing again so that the economy will operate…
KM: Blame Bush for the “burden” but be “gratified” that he got you the the bag money – this is so hypocritical that it’s very sad… the rest of Summers answer I can sign off on – Transparency, Accountability, and Trust – but that’s something I have been saying for 14 months. Thanks for the knucks Mr. Summers!
DG: Will more money be needed? Do tax payers have to expect we are not done paying it?
LS: We can make important progress and get started with the support that has been provided… what ultimately will be necessary is something that will play out over time… we are going to be proactive… the President is going to do what is necessary, but only in the context of responsibility… in the context of trust…
KM: There is that Research Edge lingo again – that’s right Mr. Summers, you need to be “proactive” as you come to realize that the answer to this questions is simply YES.
DG: Why can’t you just make them lend?
LS: sure it does… who knows what the government could do… it wouldn’t be responsible for an institution to raise its lending without having capital - frankly that’s why there needs to be more capital – but they need to lend more in a way that’s consistent with their solvency and their capital adequacy…
KM: Summers was clear on this and it was his unifying point across the interview – he needs to give them more and more bailout moneys before he can make them lend it – after all, “who knows what” a socialized government can do?
DG: what do you say to someone who is trying to prepare for their future? They have lost confidence – they say what do I do?
LS: This is why I believe President Obama was elected – this is why his call for an age of responsibility as we manage our own finances, as we do our own jobs, is so very important … people need to work hard and play by the rules… those of us responsible for economic policy need to do everything we can to make this economy work…
KM: Other than hope and pray, I agree that people need to start managing their own finances in a self directed way – what I do not agree with is having my government feel like they are the ones responsible for “making this economy work.”
Keith R. McCullough
CEO & Chief Investment Officer