Over a late dinner in Hell's Kitchen my friend The Vamp (a dyed-in-the-wool value investor from Transylvania) discussed the most insightful protester she met at Occupy Wall Street.
The protestor argued for reinstating Glass-Steagall. You look at the history of our financial industry and the business was relatively stable until G-S was repealed in 1998. From then, the volatility inflicted on our economy by the financial industry increased substantially, culminating in the Panic of 2008.
This is the single-most important reform we can make to our system.
We both wondered why Tim Geithner is the only Cabinet member still in office, especially given the abject failure of his term. Bernanke is a question mark. He has not succeeded, but not necessarily failed since the power of monetary policy is limited. We both agree that the Fed is out of bullets.
On the subject of stimulus, The Vamp noted that while unemployment insurance is necessary from a social welfare standpoint, it is not stimulus since the money is taken from one to be given to the other. No net change.
Where government spending can be helpful is for investment, which improves efficiency and creates its own returns. Spending on roads, telecom and other infrastructure would be welcome. Nonetheless, we were both wondering what major new breakthrough technology will drive the next wave of growth.
The next big thing is not yet apparent. We need it to revive long-term robust growth.
The Vamp naturally had an opinion on Europe and is certain that Greece will be out of the EU within a year or two. I have to agree. There is no way they can support any debt load and the debt default is likely to cause 90% or more losses. The most painless way to impoverish a country is devaluation and Greece is likely to choose that way over the overt ways of austerity, even though the end result is the same.
She does think they will need to save Italy. The result is likely a smaller core EMU. I agree that far, but if France goes, which is possible, the euro might just be done for. The odds are higher than most think. Use gold to protect yourself.