Nation at risk of another economic crisis, Bowles warns

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.