Nation at risk of another economic crisis, Bowles warns

Co-chairman of debt-reduction commission says the markets are headed toward a dip worse than 2008 if politicians don't get spending under control

May 20, 2014 @ 12:38 pm

By Mason Braswell

The nation's economy and clients' wealth face a dire and inevitable threat unless the U.S. government curbs spending, Erskine Bowles warned advisers at Raymond James Financial Services' national conference in Washington.

“We're going to face the most predictable economic crisis in history,” said Mr. Bowles, the former White House chief of staff under President Bill Clinton who currently serves as co-chairman of the National Commission on Fiscal Responsibility and Reform. “It will take what we just went through and make it look like a tea party.”

To avoid a national bankruptcy, politicians must work together on five key areas, including health care spending, defense spending, taxation, Social Security, and interest paid on the money the government borrows, he said.

“When the market moves, it doesn't move slowly; it moves rapidly and viciously,” Mr. Bowles said. “And I believe the markets will wake up one day and look at our country and say, 'You have a dysfunctional government addicted to debt, and the fiscal path this nation is on is not sustainable.'”

Mr. Bowles, who began his career at Morgan Stanley and currently sits on the firm's board, urged advisers to use their influence in their community and their networks to put pressure on their political representatives to resolve those five key issues.

“I know you and I've invested with a lot of you over a long period of time,” he said. “And you all make the difference.”

The U.S. spends twice as much as any other developed country in the world on health care as a percentage of gross domestic product, and growth of health care spending has outpaced GDP growth, Mr. Bowles said.

“I'd be all right with that if our outcomes were twice as good as anybody else,” he said. “But they're not.”

As part of that, Mr. Bowles and the other co-chairman of the Commission on Fiscal Responsibility and Reform, former Wyoming Sen. Alan Simpson, have proposed $600 billion worth of cuts in health care in the first 10 years of the plan and another $2.8 trillion in cuts in the second 10 years.

He said that the U.S. also needs to curb defense spending because the U.S. spends more than the next 12 countries combined.

“We are bearing a disproportionate responsibility for world peace,” Mr. Bowles said to a round of applause from the 1,000 advisers in the audience. “And I don't think America alone can afford to be the world's policeman.”

Third, the nation needs to reform its tax code, he said. He pointed to the fact that the tax policies were pushing some companies, such as Pfizer Inc., to take their business abroad.

“I think we have the most inefficient, ineffective globally anticompetitive tax code any man could dream up,” he said. “I bet I won't get any argument from independent contractors in the room.”

He also called for reform of Social Security, saying that the program has not evolved to take into account the added life expectancies. Mr. Bowles has proposed increasing the full eligibility age of Social Security from 66 to 67 by 2054.

“It is changes like that you have to make at the margin to make Social Security sustainably solvent,” he said.

Lastly, he said that the U.S. needed a balanced budget.

“It won't be long before we're spending over $1 trillion a year,” he said. “I think it could be within the next decade.”

He again urged advisers to take action.

“Your family's wealth, your clients' wealth and your children's wealth depend on it,” Mr. Bowles said.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 02


Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Top questions surrounding future of DOL fiduciary rule

Reporter Greg Iacurci and managing editor Christina Nelson discuss the biggest uncertainties springing from the Fifth Circuit Court of Appeals' decision to vacate the regulation.

Latest news & opinion

Higher estate-tax exemption level could mean less work for advisers

With fewer taxpayers affected by the federal estate tax, the demand for estate planning is diminished.

Lightyear Capital's Donald Marron said to be in the hunt for Cetera Financial Group

The veteran brokerage executive, who bought Advisor Group in 2016, owned Cetera once before.

What to watch for next with the DOL fiduciary rule

Much hinges on whether the Labor Department appeals the 5th Circuit decision by April 30.

Social Security benefits losing buying power

Low inflation combined with rising Medicare costs threaten the adequacy of seniors' income.

Finra looks to streamline broker-dealer exams

CEO Robert Cook says three examination teams may be consolidated.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print