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swiss financial history lesson in america

Friday 4 February, 2011

Albert Gallatin was America’s longest serving U.S. Secretary of the Treasurer. He was born (2011 marks his 250th birthday) in Geneva, Switzerland & became the most prominent Swiss-American in U.S. history.  THE NEW NORMAL – GALLATIN’S LESSON commemorated his birthday & provided some lessons which might be helpful today.  The event was hosted by The Swiss American Business Council, Consulate General of Switzerland, Economic Development Council, International Trade Association of Greater Chicago, & the Chicago Association for Business Economics.

Minister Martin von Walterskirchen, Regional Director-Americas of Switzerland Trade & Investment Promotion opened by remarking that @ that time the wealthy kept government kept government frugal, while today Swiss companies employ 500K in the US & 600 US companies work in Switzerland.  The panel consisted of Jean-Daniel Gerber, Swiss State Secretary for Economic Affairs, Randall Eberts, President-Upjohn Institute, Terry Savage-nationally syndicated financial columnist, (& University of Michigan alumna), & was moderated by (world age-group champion triathlete) Elizabeth Brackett-correspondent, WTTW tv.

Gerber started the discussion by noting that the U.S. does more trade with Switzerland than with Russia or Scandinavia.  Back to history, Gallatin cut America’s national debt by 50% in his 1st year as Treasury Secretary, which is comparable to the changes Paul Volker enacted in 1978 as head of the Fed.  We are still not out of the financial crisis yet because the debt issue still prevails.  Greece has never had a surplus since 1946 despite GDP growth, & when GDP has fallen they’ve had to take drastic measures.  There are 2 theories about how to get out of this mess:

  1. spend our way out ala Keynes & Krugman
  2. tighten our belts & reduce debt as Gallatin did, which builds confidence, reduces instability & risks, but is unpopular (Rogoff).

The sequences of earlier crises were the same:  debt leads to insolvencies, all of which need time (10 years) to work themselves out, depending on the relationship between federal banks & fiscal policies.  Switzerland had dismal growth in the 1990’s, but had the fastest growth 2003-2010.  Although their social security & health care are problems, they recognized they couldn’t spend like before & changed their debt rates.  People demand transparency in how to get out of the crisis to endear trust.

Eberts pointed out 5 lessons from Gallatin:  we need to;

  1. reduce our debt by balancing our budget
  2. make good government investments, as Gallatin did with the Louisiana Purchase
  3. recognize the importance of a strong central bank
  4. demand transparency & accountability
  5. recognize bipartisanship, as Gallatin recognized his rival Alexander Hamilton, but still embraced some of his policies.

Terry Savage majored in American Civilization @ Michigan, but requested we bring more Swiss bankers here.  In the stimulus vs. austerity debate, our political system is tilted so that too many vested interests receive government spending monies so that there is no will to stop them.  Austerity means increasing taxes, but not government spending, which doesn’t necessarily lead to a balanced budget.  The US$ is trending downward, while gold trends upward.  America’s Social Security system is the world’s biggest ponzi scheme.  Check out this website to see the official & unofficial US National Debt Clock .

panel Q&A

  • re: increasing the debt ceiling; Gerber maintained that despite health expenditures taking an increasing part of budgets & doesn’t “last long,” some other expenditures are productive investments with an ROI.  Europe is decreasing its expenditures on the military while they’re increasing in the US.  We need to deal with the problem step-by-step rather than in a revolution.  Savage noted that Japan has been in financial crisis for 20 years.
  • re: 1st steps; Savage proclaimed we need a dictator in Congress who will stop spending & publish on the internet every $.01 the government spends.  By 2030 we will collect 23% of our GDP in taxes & all of that will go to social security, medicaid & -care, interest on our debt-there will be none left for armies.  We need to cut spending.  Eberts chimed in that Gallatin made others pay for debt by levying an import tariff.  David Riccardo dictated that transparency is important.  Since we don’t export much, we sell internally, & thus need to double job creation.
  • re: inflation; Gerber observed that it’s not a problem yet, but if it becomes 1, the Fed will have to withdraw $ from the economy & raise interest rates, which will lead to inflation & debt.  Europe fears a drop in the $, so inflation policies need to be implemented worldwide.
  • re: trade policy;  Terry put forth, China holds $1TR of our debt, & we’re trying to tell them to float their currency?  The Chinese have bought lots of Euro-debt too.  REberts stressed we need to increase exports as the Asians pull away from exports to insulate themselves from risk.  Gerber summarized that China does not trade fairly with its undervalued currency, but a protectionist path against it is just as wrong.  Gallatin laughed last:  as a long-standing treasury secretary, he was able to see his policies implemented.  We need long-term bipartisan policies to do this.

open Q&A

  • Although China has effectively free-trade agreements with most everyone, more FTA’s worldwide would help, thus rekindling the Doha round of trade talks could be helpful.
  • Innovation in a knowledge economy should theoretically lead to successful trade, but if those new innovations are Facebook & Google, where is the payoff?  Regardless, it does make $.  Since 1980 technology doldrums, we had a 20 year technology boom.  Lower taxes help (IL is going in the wrong direction):  JFK was 1 of the biggest tax cutters by lowering rates to raise tax revenues.  We need to encourage free trade & sound currencies.

This book details his life:  Gallatin:  America’s Swiss Founding Father

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