The growing federal budget deficit is a looming challenge for the United States, and could slow future economic growth if the dollar were to lose its primacy.
Thomas McLoughlin, a New York-based wealth management executive, noted that the deficit is nearing 100% of gross national product, and were it to reach 125%, the U.S. could face major challenges.
“The deficit can be managed by the Untied States so long as the U.S. dollar remains the reserve currency of the planet,” said McLoughlin, who is head of Americas fixed income for UBS.
But if a rising deficit causes another currency to replace the dollar, he said, “it’s going to be very, very difficult for this country to grow.”
John Savercool, a senior lobbyist for UBS, said there are opportunities to address the deficit in the coming decade when the Trump tax cuts expire and Medicare costs exceed contributions to that program.
“It’s an issue that’s bigger with our clients than folks in Washington,” said Saverool, who is based on K Street in Washington. “It seems like neither party has the courage to do what you need to do to cut the deficit.”
He said Medicare and Social Security are the biggest long-term deficit problems for the United States, primarily because they are used by older Americans who have significant electoral power.
“They vote all the time. They don’t have anything else to do. And politicians don’t want to offend them,” said Savercool.
Turning to the Presidential campaign, Savercool said a brokered Democratic convention is likely, and McLoughlin suggested Bernie Sanders would be the nominee unless two of the four centrist candidates — Joe Biden, Mike Bloomberg, Pete Buttigieg and Amy Klobuchar — drop out soon.
Savercool said that regardless of who is elected President, a major change in health care would require a large Democratic majority in the Senate, and that is unlikely.
Both expressed worries about China. McLoughlin said his concern was that a slowing Chinese economy could drag down global growth.
Savercool said his worry is that the current trade war turning into “a military cold war like we had with the Soviet Union.” And he said he wished America was more united at this time in history.
“We don’t seem to be unified any more as a country,” he said. “There aren’t a lot of factors that unite us as Americans.”
But he said he’s ultimately optimistic because “it’s not within our DNA as Americans to fail.”