John Browne

Politicians and the media tell us our economy has tiptoed back from the brink of catastrophe and that a recovery is under way. They haven’t convinced John Browne, a former Conservative Member of Parliament under Prime Minister Margaret Thatcher who now writes and lectures on political, economic, financial and defense issues. A Palm Beach County resident and investment advisor, Browne was our November speaker.

“Things were really desperate, and now, suddenly, as if by magic, it seems that everything is all right,” Browne said. But this return to normal is an illusion, he said. “The same behemoth banks are still there, only now they’re larger. The same toxic assets are there, only now they’re hidden.” Meanwhile, consumer confidence has dropped to levels not seen since the 1930s. So to those paying attention, the facts don’t fit the rhetoric.

“In the 1960s, people took acid to make things look weird. Now, we take Prozac to make them look normal,” Browne observed. “So you have to ask yourself, are we being fed political and economic Prozac?”

We are told unemployment is over 10%, which is a cause for concern, but the real figure is more like 18% when you include those who have stopped looking for work or have been downgraded into part-time employment. Statistics like unemployment and inflation rates are being manipulated by the government to make the economy look healthier than it really is, while our political leaders are acting as cheerleaders for renewed investment in the stock market, he argued.

Browne believes the root problems go back to President Johnson’s introduction of entitlement programs, which have grown to the point where we have a consumer-driven economy, consuming three times what we produce and financing the difference with debt. This trend is almost impossible to reverse in the face of popular politics, Browne said, because “if you’re a voter, and you can get free money, I’d always vote for free money.”

Yet this “$125 trillion Ponzi scheme” will soon come crashing down, Browne believes. “The whole world is wondering if it’s ever going to be paid back,” he said, and the national banks of other countries such as China and India are starting to edge away from reliance on the dollar. If the U.S. dollar should ever lose its status as the world’s standard reserve currency, it’s value will plummet, he said.

Meanwhile, the inflation that would normally be expected to result from pumping more money into the economy is being suppressed by some slight of hand by the Federal Reserve, which is loaning money to banks at zero interest and allowing them to loan it back at 3% interest. This is keeping money bottled up in the system, rather than lent out to companies or individuals, thus the lack of inflation. But at some point, it’s likely that the government will take the brakes off in an attempt to stimulate the economy. The result could easily be stagflation (inflation unaccompanied by economic growth) even worse than the U.S. saw in the 1980s.

That economic crisis was ended due to the courage of Fed Chairman Volcker. Volcker couldn’t have pulled it off without “the backing of a great man, President Reagan,” he said, “but I ask you, what sort of backing would a Fed Chairman get today?” He argued the right way to have addressed the economic crisis would have been with something like a two-year tax holiday to put money in people’s pockets and spur consumer spending. He also believes that, despite its rhetoric on investing in infrastructure, the Obama administration has allowed too much infrastructure spending to be siphoned off to fund entitlements.

Ultimately, the political consequence of cowardly economic policy may be revolution – something this summer’s Tea Party rallies only hint at. But although Browne showed some sympathy with the need for the “grassroots revulsion … against the total immorality and corruption of government,” he also said it worries him that revolution without wise leadership can present an opportunity for someone like Lenin or Hitler. “It’s dangerous because of who might seize control,” he said.

The only good news Browne is that there is always opportunity amidst catastrophe “for the people who see this coming and take action to counter it,” Browne said. “The people who are really wise may actually increase their wealth, at least in relative terms but maybe in excellent terms.”

See also: event photos by Lee Hershfield

William C. Davis

Two years ago, William Davis, Past President of the Florida Association of Mortgage Brokers, told the Economic Forum that the crisis then rippling through the mortgage industry would spread. Back in the Fall of 2007, he warned that the the economy was about to get a lot worse. In an October 2009 return visit, however, he said he underestimated just how bad things were going to get, and he had few encouraging words for what lies ahead.

Many in the audience were probably hoping for better news. But Davis mostly talked about the deep systemic problems that will cause economic pain for years to come. For example, even as the economy comes back, jobs are unlikely to because during the downturn businesses have learned how to make do with fewer employees. “So jobs are lost forever,” Davis said.

Even before the U.S. economy went into a tailspin, it was being undermined by a ballooning national debt – one that is now growing even faster as the Obama administration tries to spend its way toward economic recovery with stimulus dollars. Part of the problem with appreciating this problem is the human difficulty comprehending numbers like a trillion. As Davis put it, “If you spent $1 million a day since the birth of the Lord, you would not have spent $1 trillion yet.”

The U.S. national debt is now about $11.5 trillion. “From George Washington through Bill Clinton, the debt grew to $5 trillion. So in the past few years it has more than doubled.” The deficit for the last fiscal year alone topped $1.4 trillion, he said, and within 10 years the debt is likely to top $20 trillion. “It becomes very, very hard to even fathom repaying that money,” Davis said.

Meanwhile, the combined shortfall in state government budgets suffering from falling revenues and climbing expenses is about $150 billion, so don’t be surprised when “the states go to the the federal government and say, ‘We want the deal you gave General Motors.’ ”

According to economic scorekeepers, the current recession officially began in December of 2007. In October, Davis had told an economic forum crowd that the mortgage industry’s troubles were about to spill over into other markets. Over the next year, he watched it happen as Bear Stearns failed (and got a federal rescue). Then, in September 2008 Lehman Brothers failed and, over a weekend, the feds announced no rescue would be forthcoming. “This was a weekend no one will ever forget if you’re in the financial world,” Davis said.

Partly, the federal government was trying to make a point about not rewarding bad behavior, as some critics had accused it of doing with the rescue of Bear Stearns. But Lehman’s failure made credit markets seize up, as financial institutions began to doubt each other’s solvency in an economy built too much on risky mortgages. Other major financial institutions like AIG, Freddie Mac and Fannie Mae were suddenly teetering on the brink as well, and major banks had to be rescued . “Now, the government was doing financial triage, deciding who lives and who dies,” Davis said.

Now, after a change of administration and many more bank rescues and stimulus measures, financing is still tight, suppressing the real estate market. The government still has only spent about 20% of the money allocated for the Troubled Asset Release Program, although that money is likely to start filtering out in time for the mid-term elections in 2010. Just as important to our economy, Davis said, is a change in “the psychology of wealth.” Homeowners who saw their home values soaring were also more likely to feel flush enough to buy a new refrigerator or pump other money into the economy, but today they feel a lot poorer.

“Sooner or later, the economy will show signs of life,” Davis said, but that was about as close as he came to an optimistic statement. “Nobody trusts anybody. No one trusts the government, and nations don’t trust each other. Without trust, you cannot restore confidence.”

The Seagate Marina, once a bucolic launching point for small boats, might soon be the site of a $25 million waterfront retreat with a 130-room hotel, expanded barns to store luxury boats and tiki bars and grills.

The location is the marina’s best asset, said North County commercial Realtor Rebel Cook. The nearest indoor large boat storage locations are in Riviera Beach and Stuart. And Jupiter Pointe is a convenient location for boat owners who live on Jupiter Island, she said. “The economy is still down. (Miller) must have strong financial backing if he is going to make it through this recession,” Cook said.

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Randy Schultz, Editorial Page Editor, the Palm Beach Post

At our September meeting, Palm Beach Post Editorial Page Editor Randy Schultz made the case against misinformation – and for the continued existence of newspapers.

“Since my part of the paper is the one that deals with comment, I would like to discuss the difference between informed comment and uninformed comment. Because it has never been more important to distinguish between the two,” Schultz said.

He began his talk with a series of assertions that are not true, but which many people believe, because they’ve read them on the Internet, a medium that provides easy access to all the facts you would ever need but which also mixes those facts in with a lot of nonsense. Some of those distortions are partisan, like the idea that Barack Obama wasn’t really born in the United States, while others are simply urban myths that keep circulating no matter how much anyone tries to debunk them. Meanwhile, most of the actual news that appears on the Internet actually starts with newspaper stories that Google and Yahoo aggregate and which bloggers cite and comment on – and often distort, Schultz said. Politicians and talk show hosts often feed and magnify the distortions because they “want to make the facts fit their opinion, rather than having facts and drawing an opinion from them,” Schultz said.

As a result, too much of the debate over public policy “turns on misinformation and uninformed comment,” Schultz said. That makes it much tougher to solve serious problems, like health care reform, because so much of the discussion is about side issues and distractions rather than substance, he said. “You’ve got to fight through all that before you can get to the real debate. It’s sort of like having to run two miles of a marathon, and then say, ‘Now you’re at the starting line.’ ”

This is a problem not only on federal issues like health care reform but on the local level, in fights over budgets and taxes. He cited the case of a Palm Beach Councilman who went to the County Commission to complain about all the tax dollars being spent on running four airports. The only problem with that argument is that the airports run on fees, not taxes.

The coming debate over the Florida Hometown Democracy amendment could turn on just such uninformed opinions. The amendment’s goal of giving voters veto power over zoning changes is likely to sound good to many voters concerned about over-development, he said, but the actual effect will likely be to paralyze local government by making it too difficult to make even the most routine changes. “This is popular sentiment run amuck. But I have to tell you, I can see this passing.”

His admittedly self-serving conclusion is that people need to spend more time reading and supporting newspapers. “Even in our somewhat wounded, shrunken condition we still provide more information that you can rely on,” he said.

That’s not to say that newspapers don’t make mistakes, or sometimes miss important stories, Schultz said. But they still have a tradition of trying to get the facts. Even though his job gives him the freedom to state his opinion, he said he has killed many editorials because they weren’t supported by the facts. “And we knew that because we checked,” he said.

Russell Greene

Russell Greene – Grand Bank & Trust of Florida President & CEO

Attendees at Russell Greene Luncheon

Palm Beach County Economic Forum President Rebel Cook said she is still “reeling” from news of the alleged scam. She predicts many wealthy Palm Beachers will be forced to cut back on their personal staffs, creating a trickle-down effect of growing unemployment. In the coming weeks, area restaurants, which are already hosting fewer patrons and coping with reduced staffs, will likely receive even less business, and charitable foundations will try to survive with dwindling donations, Cook said. The only South Florida industry that might be spared from the fallout is the legal industry, which will feed off the inevitable slew of lawsuits, Cook said. But even that’s not a sure thing. “Will lawyers do well?” Cook said. “Yes, if their clients can pay them.”

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Rebel Cook took stock of the country’s financial crisis on Tuesday and wondered whether she’d prefer a hurricane. Both disasters are devastating, but one has a predictable end, said the president of the Economic Forum of Palm Beach County. “If it was a hurricane, it would blow through and it would be gone,” she said.

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