Posts by Lew Spellman
Posts about Lew Spellman
Troubling financial predictions, surprising angel investing statistics, and advice on how not to become the next Lance Armstrong were among the topics presented at the McCombs Alumni Business Conference on Feb. 8.
In his annual State of the Union Address this week, President Barack Obama urged lawmakers to move beyond partisan budget showdowns and work together to maintain the momentum of a rebounding economy. The speech touched on topics including job growth, health care reform, labor force training, gun control, and immigration. Obama emphasized the importance of supply-side economic policies — measures that strengthen the country’s domestic labor force and economic output — as key components of stable growth.
In January, America found itself in the middle of yet another High Noon standoff over the national debt. Once again, the U.S. Treasury hit the limit on what it can legally borrow, and once again, Congress staged a showdown over increasing that limit. This time around, Congress voted to suspend the ceiling for only a few months, setting up another potential standoff for early summer. Businesses are concerned that these standoffs will continually stunt economic growth, prompting some experts to recommend eliminating the debt ceiling altogether.
Members of the University of Texas at Austin faculty shared their thoughts on President Obama's State of the Union address.
In the latest episode in America’s deficit saga, a 12-member Congressional panel, nicknamed the “supercommittee,” is trying to slow down a runaway train: the national debt. It’s crafting a plan to trim at least $1.2 trillion, on a deadline that’s approaching faster than a speeding bullet. The plan is due before Thanksgiving. It’s a job that might require superpowers, say faculty at the McCombs School of Business: a superhuman grasp of economics combined with superhuman political skills. The committee has to tighten Uncle Sam’s belt without squeezing him into another recession, and do it in an atmosphere where compromise is treated like kryptonite.
Your doctor sounds the alarm: Your weight has hit the danger zone. You ask for a miracle drug that could slim you down overnight. His matter-of-fact reply: Eat less and exercise more. Like losing weight, the steps needed to deflate the federal deficit are not drastic, say faculty at the McCombs School of Business. The chief obstacle is not economic practicality but political willpower. “We’re a wealthy country with a solid central bank,” says Dean Thomas Gilligan. “We can work through this.” How much should America restrict its fiscal calorie intake? A reasonable target, say many economists, is to maintain publicly-held national debt at its current 62 percent of Gross Domestic Product. With no change in current policies, that number would top 350 percent in 75 years. To bridge that gap, calculates the Treasury Department, will take spending cuts and revenue hikes that add up to 2.4 percent of GDP. That would amount to $360 billion this year, and larger amounts as the economy grows. “That’s what it needs to add up to immediately, and it needs to be lasting,” says McCombs senior lecturer Sandy Leeds. “If we can keep our debt-to-GDP ratio constant over 75 years, it would be an amazing feat.”
When the world’s largest bond fund dumps the world’s safest bonds, the investment world takes notice. That happened over the past year, as the PIMCO Total Return Fund reduced its hoard of U.S. Treasury securities from $147 billion to zero. The culprit, said manager Bill Gross, was the national debt. To date, America’s mounting deficits have been an abstraction, a threat a couple of generations down the line. But there’s evidence, say faculty at the McCombs School of Business, that they’re starting to take a toll on the U.S. economy. “We’re getting close to the tipping point,” says McCombs finance professor Lewis Spellman. One closely watched indicator is the ratio of the nation’s debt to its Gross Domestic Product. Four years ago, it stood at 64 percent. At the end of 2010, it hit 93 percent. That figure sets off alarm bells for some economists.
What a difference a decade makes. Eleven years ago, the budget of the U.S. government was $236 billion in the black. Today, it’s $1.6 trillion in the red, and the national debt has nearly tripled. How did it climb so far, so fast? Call it Deficit Attention Disorder: an irresistible urge to cut taxes and increase spending, whether or not the nation can afford it. It afflicts both major political parties, say faculty at the McCombs School of Business. Over the past 80 years, each party has relaxed standards and upped antes, making the national debt perhaps the most bipartisan program ever to come out of Washington. “The parties keep fighting over it, but nothing’s getting done,” says Jim Nolen, senior lecturer in finance at McCombs. “Republicans were supposed to be fiscally conservative, but when they have no checks and balances, they like to spend as much as the Democrats.” It wasn’t always so.