Martin Gruss: The Root of All Economic Evil
If I had a dollar for every time someone said the word "deficit" I would be a rich woman.
The “root” of our economic ills have been debated, rehashed and tweaked with nuisances to describe what phase of the “recovery” we are in. I think “New Normal” is the “it” phrase right now, but let’s face it—it’s still the same mess. The best way I would describe this economy is a tortoise with two broken legs carrying an enormous load on its back. The load I’m talking about is the deficit and the housing market.
The United States Congress continues to try and spend our way back to prosperity. The disparity between revenues coming into Uncle Sam’s wallet and what’s being spent is great. The level of government dysfunction has never been more apparent. Voters are so disgusted with both sides of the aisle that they have almost created a third party, the Tea Party.
To get a C-suite perspective on all of this, I decided to sit down with Martin Gruss, Senior Principal of the private investment firm Gruss & Company, which has $2.5 billion under management. We started our conversation on the latest economic team changes in the Obama Administration.
LL: Do you think the economic tone will be changed at all?
MG: I've been trying to figure that out. Austan Goolsbee is a tough economist to figure out. I went on Amazon about a year ago to see what kind of books he has written to get a sense of his economic thoughts. You know what I found out? He hasn't written any books. So he is sort of a white sheet of paper in terms of what he is on the record for in terms of his thoughts. My guess is his economic outlook is aligned with Obama's predilection for redistribution for wealth.
LL: What is needed to help America get out of this abyss of debt?
MG: I think the policy I would like to see is austerity for all. Equally shared burdens. That means tax increases for all. But also real significant spending cuts in Washington. Right now we are just taxing more but digging the hole deeper, so in a sense we're just wasting our time if we don't stop spending.
LL: In terms of the structural changes, how long will it take to correct them?
MG: It’s hard to say. Probably at least five to ten years, I think we have a dysfunction that pervades federal government as well as state and local government. There is very little understanding on the economic consequence of what government is doing and sort of an inability to set the proper priorities.
For example, Obama making health care his number one priority instead of tackling spending. His health care plan is really going to increase the cost of medical assistance in the United States. It would have been better to come up with programs that would reduce federal spending rather than increase it. Obama should have focused on the deficits and have tackled that first.
LL: Do you think the midterms will clear up uncertainty hanging over the markets?
MG: I really don't because at best you'll have gridlock, which will create even more uncertainty, that what we have now.
LL: Do you think Congress has learned any lessons during this "Great Recession"?
MG: I don't think politicians’ are in the business of learning lessons. I think politicians’ are in the business of getting re-elected. That's really all they care about. It’s always easier to spend more money if you're not around to pay the bill. Unfortunately my children and my grandchildren will be responsible for that bill. Not me.
LL: When you are looking at the massive deficit, the rising price of gold, which we know, is a reflection of the dollar, what is your worse economic fear?
MG: What I worry about every day is a collapse of a dollar and what we are seeing now I like to call "dollar depreciation". Meaning, right now the dollar buys less. Over the last six months, I think off the top of my head, the dollar is down about ten or eleven percent and the way we are going now, the dollar is going to be worth even less in the next twelve months. Currency depreciation is also being affected by taxes.
I think taxes are going up one way or another. Certainly for the top five percent, and I think they should go up. So I worry about the decrease in purchasing power, which I think is a main concern for every investor probably.
LL: How close are we to the collapse of the dollar?
MG: I don't know, but I think Congress trying to promote a trade war with China is certainly not going to help. This is a real example of dysfunctional. I mean talk about biting the hand that is feeding you.
LL: Let's turn to the stimulus package. Do you think it was spent effectively?
MG: That's another thing I don't understand about the Obama Administration. According to the American Society of Civil Engineers, we have a two and a half trillion-dollar infrastructure problem and that's just to fix the crumbling infrastructure that we have. And here's Obama puffing up his chest about spending fifty billion dollars on infrastructure. Fifty billion is probably going to be what costs to repave the streets of Manhattan alone! It may not even be enough.
LL: If there is a second stimulus, where should that money go?
MG: If there is a second stimulus it needs to be spent on investments such as infrastructure. Not something that is eaten up in a year or so. But something that will be around for generations to come. We need a highway bill we had in the days of Eisenhower. If you go to just about any city in the United States, many of the streets are just crumbling.
LL: What's your outlook for GDP growth next year?
MG: More of the same as this year.
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."