Forget about inflation. This billionaire investor worries about democracy


By Matt Egan, CNN Business

David Rubenstein ignores fears of runaway inflation and concerns about impending tax hikes. The private equity billionaire worries a lot more these days about the state of America’s democracy.

“We don’t have a two-party system. We have enormous tensions between the two parties, ”Rubenstein, co-founder of the Carlyle group, told CNN in an exclusive interview. “It’s not a good situation. Hope we can fix it, but I don’t think it will be fixed anytime soon.

The investor and philanthropist sees Covid-19 and the Jan. 6 uprising as two important “stress tests” of American democracy – the ones that have further divided the country. He said they were joining a list of other stress tests throughout history, including the Vietnam War and Watergate.

“We have already had political divisions. Obviously, the biggest of these was the Civil War, ”Rubenstein said in an interview on the sidelines of SALT’s finance, technology and geopolitics conference this week in Manhattan.

While Rubenstein worked on Capitol Hill and the White House in the 1970s, politicians felt like great lawmakers if they proved they could work with people across the aisle, he said. he declares.

“Now anyone who works with the opposite camp is being ridiculed by their own party,” he added.

The political dysfunction prolongs the battle to raise the debt ceiling, an “archaic” mechanism that Rubenstein wants to abolish. The Treasury Department said it would run out of cash and exhaust the extraordinary measures next month unless the federal borrowing limit was raised.

“It’s a strange phenomenon”

Rubenstein, whose Forbes wealth stands at $ 4.3 billion, interviewed historians, diplomats and musicians for his new book “The American Experiment: Dialogues on a Dream”. In the interview with CNN, he expressed his frustration that dysfunctional politics had permeated the US response to Covid.

“We have lost 650,000 Americans. Four million people have died worldwide from Covid. When do we say “enough is enough”? Asked Rubenstein.

President Joe Biden has announced plans to impose an emergency rule that would require employers of 100 or more workers to ensure their workforce is fully vaccinated or submit negative Covid tests every week. Businesses could face fines of up to $ 14,000 per violation.

Republican governors have lambasted Biden’s vaccination mandate, Mississippi Governor Tate Reeves, describing the demands as “clearly unconstitutional” and comparing them to “tyranny.”

“I see no alternative to what he did,” Rubenstein said of Biden. “Obviously, people are playing in front of a political audience. Some people want to congratulate themselves on having developed a vaccine quickly enough, but they don’t want people to take the vaccine. It is a strange phenomenon.

The inflation debate

And even as another current debate rages on inflation, Rubenstein dismissed those concerns.

“There are bigger things to fear than the monthly inflation rate,” he said.

Consumer prices have been the focus of investor concerns: they rose in June and July at the fastest 12-month rate since 2008 before cooling off somewhat in August.

Price increases have in some cases wiped out wage increases for workers. After adjusting for inflation, compensation is now lower than it was in December 2019, according to an analysis released in August by Jason Furman of Harvard University.

However, Rubenstein expressed confidence that inflation will subside from these high levels, although it may remain above the Fed’s target of average inflation of around 2%.

“I don’t think the world will collapse if we have 3% or 4% inflation. We just got used to low inflation, ”he said.

Rubenstein, non-executive chairman of Washington, DC-based Carlyle, pointed out that countries like Japan have tried and failed to create some inflation. And higher inflation should allow the Federal Reserve to push interest rates out of the basement, giving it the chance to lower them again in the next recession.

“It will take us out of this artificially low interest rate environment that we are experiencing now,” he said.

As Congress debated Biden’s $ 3.5 trillion Build Back Better plan, Rubenstein expressed confidence that lawmakers will eventually enact increases in corporate, capital gains and personal tax rates, though the final levels remain a bit of a mystery.

“There will be tax increases. There is no doubt about it, ”he said. “The reason is that we need the income. And we don’t have the discipline to cut spending.

“He stood up to Trump”

Unsurprisingly, Rubenstein said he believed Biden should re-elect Federal Reserve Chairman Jerome Powell, who the billionaire hired from Carlyle in the late 1990s.

“He did a really good job,” he said.

Rubenstein argued that Powell had proven his independence by refusing to give in to former President Donald Trump’s demands to lower interest rates.

In 2019, Trump compared Powell to a “golfer who doesn’t know how to putt” and even suggested his hand-picked Fed chief is a “bigger enemy” than Chinese President Xi Jinping.

“He was strong not to get into a fierce battle with Trump. He has stood up to Trump in a number of ways, ”Rubenstein said.

Progressives urged Biden to replace Powell with someone who would be tougher on Wall Street regulation and climate change. Even longtime Republican Sheila Bair, former FDIC chairman, argued that the Powell-led Fed is too soft on big banks.

But Rubenstein is skeptical. Biden will find someone to replace Powell who can be confirmed by a tightly divided Senate.

“You have the rare person that Democrats and Republicans generally respect,” Rubenstein said.

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