core sector communique

FORMER DEPUTY TREASURY SECRETARY AND BANK CEO

FRANK N. NEWMAN PRESENTS NEW THINKING ABOUT U.S. ECONOMY IN

SIX MYTHS THAT HOLD BACK AMERICA

As Washington is focused on reducing the federal deficit, former Deputy Treasury Secretary Frank N. Newman, fresh from a five-year stint as CEO of Shenzhen Development Bank in China, says that America is needlessly missing opportunities to implement solutions to today’s most pressing economic problems.

In his new book, SIX MYTHS THAT HOLD BACK AMERICA (December 2011, Diversion Books), Newman analyzes a series of major policy issues that are widely misunderstood and shows how these misconceptions keep America from pursuing programs that could power up the U.S. economic engine and substantially reduce unemployment. He also shows how China, free of these myths, has pursued policies that have fueled growth by more than 8 percent per annum for the past twelve years, and avoided recession even during the global financial crisis.

SIX MYTHS THAT HOLD BACK AMERICA is not based on any ideology or political belief. It is unusual and radical, because it challenges, through logic, a number of commonly accepted statements about economic issues that affect America in deep and significant ways. Throughout, Newman’s thinking, as well as his conclusions, are often highly contrary to accepted wisdom.

Newman, who has served as CEO of Bankers Trust and as CFO of Bank of America and Wells Fargo Bank during his thirty year career, says “The financial crisis and recession in the West were driven in part by problems of excessive and unwise personal debt, and debt of financial intermediaries – not by federal debt, not by the issuance of Treasuries . . . The burdens of misplaced fears fall now on all of America affected by the slow economy, especially the 14 million unemployed Americans. Now is a time to think through how to implement an American version of the positive approaches that worked so successfully for China in 2008 and 2009.”

Among the Six Myths that Newman tackles are:

If everyone tries to save more, the nation will save more, and investment, GDP, and employment will increase – This is false. No nation can save its way from a weak economy to healthy growth. The only way for GDP and employment to grow is if spending increases in the nation – spending by consumers, by business, by buyers of American exports, or by government.

If the deficit is reduced, then national saving and investment will increase – This is false. The notions that “government saving” could spur business investment, and that lower deficits and higher taxes could cause more investment, is highly misleading, and interferes with good policy. There are valid reasons for serious planning and actions to reduce structural deficits over the long-term, to be ready for full-employment years in the future, but these reasons should not hold America back from strong steps to deal with today’s high unemployment and slow economy.

Deficits create great burdens of repayment and taxes for our children – This is false. The U.S. has gone over two hundred years without ever fully paying down total Treasuries held by the public. There is no need to worry about paying it down in the next generations. Issuance of Treasuries this year, to support a larger deficit in an economy of high unemployment, will not cause great burdens for the future.

According to Newman, once policy-makers, business leaders, and the general public understand the debilitating effects of these and other myths, they can move ahead to take the steps necessary to develop a strong economy. Those steps include actively building and repairing infrastructure, increasing spending wisely to create jobs, and reducing taxes so that the private sector can spend and hire more. Newman also shows why:

· Issuance of Treasury securities cannot “use up” or “crowd out” funds for private sector use.

· America should not treat China or Japan deferentially as our source of financing. It is not possible for Asian nations to take dollars out of the U.S. financial system.

· Fiscal deficits at a time like now with sustained high unemployment are not only acceptable, but essential.

· The U.S. will never have the same kinds of financing problems that eurozone nations are facing.

· Programs to create jobs and build infrastructure over the next few years should not be paid for by tax increases or spending cuts.

As Newman writes in SIX MYTHS THAT HOLD BACK AMERICA, “We Americans have a great opportunity to grow much more strongly, and to build a far better future. It is within our own abilities, but only when we free ourselves from the myths that have been holding us back.”

ABOUT THE AUTHOR

Frank Newman is a former Deputy Secretary of the U.S. Treasury Department, and has thirty years of experience as a banking executive in both the United States and China. Upon completion of his service with Treasury, he was awarded the Alexander Hamilton Award, the department’s highest honor. He recently completed five years as Chairman of the Board of Directors and CEO of Shenzhen Development Bank, China. He has held the positions of Chairman and CEO of Bankers Trust, Vice Chairman and CFO of Bank of America, Executive Vice President and CFO of Wells Fargo Bank, Director of Korea First Bank, and Director of Dow Jones & Company. He and his wife divide their time between Hong Kong and the United States