What Would Larry Summers Do?-Bloomberg TV's Fiscal Cliff Summit
Bloomberg Television's Trish Regan sat down with four of the nation's brightest business minds to discuss their solutions for avoiding the fiscal cliff:
Former Treasury Secretary LARRY SUMMERS
Kynikos Associates President JIM CHANOS
Cantor Fitzgerald CEO HOWARD LUTNICK
Former Army General WESLEY CLARK
Video--Summers discusses whether U.S. debt could be downgraded again:
The Street Smart "Fiscal Cliff Summit, a one-hour special report, airs tonight at 8pm ET. Watch via livesteam at http://www.bloomberg.com/tv/. Highlights below and full transcript available upon request.
Summers on what the key is to getting a budget deal done:
"Look, nobody who holds a Treasury bill or a Treasury bond should worry about the full faith and credit of the United States... It may do so in a complex and overly expensive way because of all this posturing, but the United States is going to meet its obligations."
Summers on spending cuts and taxing the wealthy to make up for the gap:
"... I think all things need to be phased in. Crash diets aren't the best way to lose weight. And overly rapid austerity programs, as we've seen in England, have huge adverse consequences for economies."
"... I think many people don't realize - in the numbers people are using now, if you just take the baseline, the assumption is the government, the basic functions of government, the national parks, the FBI, whatever they do at HUD, all of it, is going to be smaller relative to the economy than any time in the last 50 years. And so that's already baked in."
"That's why some of us are talking more about revenues right now, not because we disagree that the right thing to do is to start on the spending side, but because huge spending cuts have already been baked in to regular government. Entitlements, yes, that's something that does have to be thought about, particularly with regard to controlling the growth of health care costs."
Lutnick on taxes:
"We are spending over $1 trillion a year that we don't have. And, you know, we all talked about Greece. What did they do? They just spent, spent, spent money that they don't have. And eventually it comes back to haunt you. So we need to be fiscally responsible... Taxes go up. I think they should go up broadly. Certainly they should go up on the wealthy, but they're going to go up broadly, because it's got to make a difference, and spending's got to be cut. I'd use a simple word, balance.
Chanos on taxes:
"I think that taxes should not go up on the middle class. I think they should go up on the wealthiest. I think that the wealthiest have the least propensity to consume. I think spending would not be hurt. And I think that talk about broadening the base and everybody paying their fair share is really somewhat crazy, because lower-income and lower-middle-income people are really paying a big burden. Taxes are regressive down there."
Chanos on compromise:
"Eventually, they're going to find the compromise, but are they going to play chicken at the end of the year? Of course - of course they are. That's the way it's worked. That's how we got here in the first place."
Chanos on whether he would short sell the U.S. if it were a company and in the current state the country is in:
"Of all the global markets, I'm probably the most constructive on the USA. So that, as a bear, meaning that I think that it's the greatest country in the world, and we still have the best long-term prospects."
Clark on whether defense cuts will hurt national security:
"So there's lots of impact of this, if we go down the military road. But will it hurt U.S. national security? Yes. Is it crippling? No. We know how to take cuts in the Pentagon. It can be done mechanically. Sure would be better if we don't do it."
Summers on whether raising taxes on the wealthy will get the U.S. through the fiscal cliff:
"A great deal of the uncertainty actually has to do with whether we're going to go over the fiscal cliff. And the news that we're not going to go over the fiscal cliff will be hugely reassuring. That's the most important uncertainty that the economy faces. People live in the present. They don't live in the 2020s."
Lutnick on what advice he'd give to President Obama:
"So since I think jobs is what's going to drive this economy, I would say create an incentive package. Say to the CEOs, look, here's an idea. We're going to raise taxes on the rich, except if they go create jobs. You get a tax credit if you create jobs. You got a lot of money? You want to sit on the sidelines? Pay more taxes."
Chanos on advice to President Obama:
"If I was the president, I would say, let's put this all back on the table and let's really attack entitlements. And let's attack health care costs. That's what's doing this, because the other side said, we have to cut spending. The problem, as we know, and we talked about earlier, is that my cut in spending is your reduction in income."
"No deal is better than a bad deal over the short period. And I think that's the rational type of negotiation we have to have. We have to have a good deal. And if it means we keep talking over the contrived date of December 31, we do it. You know, we're grown-ups."