These are the most tumultuous economic times any of us have ever lived through,” said Todd Buchholz, the opening speaker for the general session of Day Two at the 2011 LIMRA Annual Conference in New York.
Buchholz, a former director of economic policy at the White House during the Bush administration, is also the managing director of the $15 billion Tiger Hedge Fund. He has also published in the Wall Street Journal, Worth and the Financial Times as well as regularly appearing on CNBC.
As the big opening speaker for this morning’s event, Buchholz offered a mix of snarky observations on how pear-shaped the global economic environment has become, but he also tempered that with some reality-check bits of cautious optimism.
As economists, our forecasting record has been miserable because the building blocks of the global economy have shifted, and our old economic models have been shredded,” Buchholz said. To prove the point, he produced from his pocket a shiny red Hot Wheels version of a Ford GTO. The toy car, he noted, cost more to buy than a single share of GM stock.
The reasons for why economic conditions have changed so sharply in the last 20 years were threefold, Buchholz said. First, the collapse of Soviet Communism and the rise of China and India as world trading partners flooded the global marketplace with labor, creating a sense of hyper-competition. Second, all of those new workers wanted three meals a day and other products, creating a corresponding rise in commodity costs. The third was an extended boom of mergers and acquisitions that not shook confidence by rewriting entire industrial profiles overnight. In one anecdote, Buchholz mentioned how, during the Daimler-Chrysler merger, German executives, unable to pronounce the name. “Plymouth,” simply remarked, “he Chrysler is silent.”
A risk all of this creates, Buchholz said, is a backlash against capitalism itself, as typified by the Occupy Wall Street movement, whose relatively few followers have nevertheless captured global media attention. But it also creates a backlash against free trade, which results in counterproductive protectionism and tit-for-tat trade wars (as seen when the U.S. recently put a tariff on Chinese tires, so the Chinese responded by putting a 100% tariff on American chickens). Free trade, Buchholz said, has done more to eradicate poverty than any social welfare program, citing poverty numbers worldwide, with sharp dips in Asia during the same period of time when so many flooded the labor market.
To improve things, the United States needs to address three immediate problems. Buchholz said. The first was that the Federal Reserve has hiked its rates too much recently, given short-term trends in related financial markets. But this, he said, was relatively minor, and overall he defended the policies of ?? Ben Bernanke, whom Buchholz said has been under attack for his loose monetary policy. But it is that same policy that is the only reason why the GDP has been positive since 2009, Buchholz pointed out.
OPEC has tightened the noose on energy costs, raising crude oil back to $90 a barrel, another cost driver. If oil can retreat in time for Christmas, Buchholz said, it would free up consumer spending, which is a big boost to the economy.