Just finished reading “In an
Uncertain World” by former US Treasury Secretary and later Citigroup Chairman,
Robert Rubin. After the 2008 Crisis
burst on the international scene, alongwith former Fed Chairman Alan Greenspan
Rubin had come in for criticism that he had helped engineer the repeal of the
Glass Steagall Act which allowed commercial banks to undertake investment
banking business.
This book however was published
much before (2003) the GFC 2008 and essentially is an account of Rubin’s time
in Goldman Sachs and later as Treasury Secretary in Clinton Administration from
1995 till 1999. It was certainly an eventful period in the annals of modern
finance and would be remembered for a chain of economic crises which started in
Mexico, followed by East Asia, then Argentina and finally the Russian default
which also led to the failure of the LTCM hedge fund in the US.
Rubin provides details of how the
Clinton Administration dealt with each one of these crises and more often than
not the global economy came out more bruised than before from each one of them. Given that Obama got re-elected as President
just last week, I will discuss and record two themes here from the book.
1. The
Uncertain World: Rubin analyses his ideas about uncertainty and how he
understood it and coped with it in life.
Following are his “principles” as framed by him:
i.
The only certainity in life is that nothing is
ever certain.
ii.
Markets are good, but they are not the solution
to all problems.
iii.
The credibility and the quality of a nation’
policies matter for its prospects than anything United States, the G-7, or the
international financial institutions can do.
iv.
Money is no substitute for strong policy, but
there are times when it is more costly to provide too little money than too
provide too much.
v.
Borrowers must bear the consequences of the
debts they incur – and creditors of the lending they provide.
vi.
The United States must be willing to be defined
by what it is against, as well as what it is for.
vii.
The dollar is too important to be used as an
instrument of trade policy.
viii.
Optionality is good in itself.
ix.
Never let your rhetoric commit you to something
you cannot deliver.
x.
Gimmicks are no substitute for serious analysis
and care in decision making.
I quite like the
last idea.
2. The
other theme is the US fiscal deficit.
The deficit which had come in to existence after the dot com bust (the
US actually had a fiscal surplus by the end of the Clinton presidency) has continually ballooned and thanks to the
Bush wars and the GFC US today is battling with the worst ever fiscal deficits
in history. After Obama’s re-election
the debate rather the battle over deficit reduction is now out in the
open. Over the last decade, the
Republicans have taken complete leave of their senses on this subject. The Party of No, as they are now called, have
applied all sorts of perverted logic in order to preserve the tax cuts for the
rich while at the same time calling for cuts in the welfare programmes which
largely benefit the poor. Rubin has very
cogently explained the Clinton Administration approach towards the reduction of
deficits and once again it is up to a Democrat president to stand up to the
combined idiocy of the Republicans who seem to have learnt no lessons despite
overwhelming evidence that the Reagan’s supply side economics regarding (also
known as Dynamic Scoring) tax cuts for the rich is not working.
Thus I feel
that Obama has the weight of history behind him and in the coming months we may
witness bloody battles with the GOP over deficit reductions. As Obama has clearly been handed a clear victory
by the Americans, Republicans would be fighting with their backs against the
wall. If Obama succeeds in getting his
plans through, there would be an adverse impact on the risk markets. But as was
shown in the recent fall in Dow and which did not translate in a similar fall
in the Indian equities, I think this was a small trailer of the movie that I
expect to play out between mid-December till mid-January but an Obama victory will
over the next 4 months to 6 months would be clear boost for the risk
markets.
