Bloomberg Washington Summit: The Sequester

Bloomberg Washington Summit: The Sequester

Bloomberg Washington Summit

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I was at the Bloomberg Washington Summit on April 30th; I arrived late, despite leaving with a half hour to spare, and the Internet was down, so I puzzled over how to cover the event. What kicked me over the edge was that Bloomberg jams its programs together with no rest breaks except lunch. Thus I decided to cover the conference mostly via Twitter, and lob in questions to the Q&A.  As it was, I tweeted around 80 times, and lobbed in 17 questions, of which 8 were used out of the 15-20 or so audience questions that were used.

I would like to discuss some of the broad themes here, and give my opinions on the matter.

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US Budget Deficits

There was the traditional bifurcation here, kind of like, “Lord, make me a Christian, but not yet!”  They saw the the need to bring down the deficit, but not yet.  Sadly that means that the deficit won’t go down much, or may even rise.

Personally, I think that the fiscal multiplier is low, perhaps negative, so reducing the deficit may actually stimulate the economy as resources move from unproductive government uses, to productive private uses.

And then there was my question:

The Federal government is too far away from what is really needed, unlike the states.  The government merely spending money does not help the economy – it matters what it is spent on.  Why should we expect the huge deficit to help us?

They agreed it did matter what the money is spent on, contra Keynesian notions.  One agreed it would better be done at the state level.  Others said we could not afford to reduce the deficit.


I like the sequester because it reduces the deficit.  Is it ham-fisted?  Yes.  Could things be done better? Yes.  So why do I like it?  It reduces the deficit, and politicians can’t agree on what to do about spending.  This forces the nation to figure out what it really cares about, versus past laziness.

I would increase the sequester, add in entitlements, and reduce the deficit to zero, if I could.  The screaming would motivate a real solution, because with no pain, there is no pressure for a solution.

Everyone carped about the sequester.  The Democrats blamed everything on it.  The Republican Governor of Virginia engaged in special pleading because it hurt defense spending in his state, and defense was necessary for the good of the republic.  My question, which he hemmed and hummed over was:

Didn’t Virginia disproportionately benefit from prior federal spending? Why shouldn’t Virginia, like Maryland, bear disproportionate costs?

In general, the sequester was a “whipping boy” that took the hit for bad monetary policy and large deficits.  The Democrats blame the results of their bad policy on the sequestration.

More in part 2.




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By David Merkel, CFA of alephblog

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.
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