Our soaring national debt poses an increasingly perilous threat to the long-term fiscal health and stability of the United States, a prominent investment manager told a Palm Beach Civic Association audience last week.
Eventually, the problem must be confronted, said Paul Tudor Jones II, keynote speaker at the Civic Association’s Signature Series program Thursday at The Beach Club.
“We know we’re going to have a reckoning,” Jones said. “The question is, what does that reckoning look like?”
Jones is co-chairman, chief investment officer and the controlling principal of Tudor Investment Corporation, which he formed in 1980. He is also eminent philanthropist and conservationist, and a Civic Association director since 2016.
Jones was interviewed before an audience of 130 people by Michael Pucillo, the Civic Association’s chairman and chief executive officer.
The United States ranks fourth highest among the world’s debtor nations, measured by the ratio of its staggering $34 trillion debt obligation to the size of its economy. Deficits are projected to continue rising as a percentage of the federal budget for years to come.
U.S. debt is currently 125 percent of its Gross Domestic Product or GDP. According to Jones, simply holding the line on that ratio of debt to GDP would require a painful program of fiscal austerity: spending cuts and tax increases totaling $1 trillion. That’s in addition to the loss of $350 billion in Trump-era tax cuts set to expire in 2025.
Jones said he realizes that, under our political system, the government is unlikely to take such steps – until something happens that forces its hand.
“The situation we are in is not sustainable,” he said. “The question is when it manifests itself in the stock market … relative to the rest of the world, we are the largest and most egregious fiscal aggressors that there are.”
Jones said he doesn’t believe the United States can grow its way out of debt by cutting taxes. That’s been tried and it didn’t work.
Jones said, however, that artificial intelligence could be “the knight on the horse that rides in and saves us.” A.I. is rapidly arriving and will have an enormous impact on productivity, which will grow our GDP, he said.
“It’s not complete doom and gloom because we are the center of the A.I. revolution,” he said. “There is a productivity miracle coming … It’s just amazing the efficiency gains that come with it.”
A.I. is galloping forward at an unbridled pace because there’s so much money in it, Jones said. But it’s a double-edged sword, Jones said. More than 2,700 artificial intelligence experts were asked if they think there’s a 5 percent chance that it could end humanity. About 60 percent responded in the affirmative.
The computational capacity of A.I. is astonishing. Jones read that one bad actor could easily use it to create a pathogen that could kill a billion people.
“How do you risk-manage a 5 percent chance of the end of humanity?” he said. “I don’t know.”
Turning to the more immediate future, Pucillo asked Jones if he’s surprised that the United States appears headed for an economic “soft landing” instead of a recession. A rapid series of interest rate increases by the Federal Reserve appears to have brought inflation under control even as unemployment remains low at 3.7 percent.
Soft landing?
Jones said he expects the Fed to start cutting rates in March. The outcome of the presidential election in November, and the resulting fiscal and tax policies, also figures largely in the economic forecast, he said.
“What happens to the stock market in the next 12 to 24 months has a huge amount to do with the policy response by our next president to the fiscal situation we have in the United States,” he said. “You’ve got really divergent paths for the stock market.”
Jones has been described as a “macro trader.” He said that means he trades “baskets of stocks” in several large asset classes that include bond markets, debt instruments, foreign exchange relationships, and commodities.
A native of Memphis, Tenn., Jones began trading in the 1970s. One of his earliest and major successes was to predict the Black Monday stock market crash in 1987, when he tripled his money. Pucillo asked him how he saw it coming.
Jones responded that the crash happened at a time when the market was overvalued, and when he had an expertise in futures and derivatives that most people didn’t have.
Philanthropy
Jones is co-founder and a board member of the Everglades Foundation, which is committed to the protection and restoration of that diverse ecosystem through science, advocacy and education.
He also founded and is on the board of the Robin Hood Foundation, which partners with more than 200 organizations to fight poverty in New York City.
In 2014, Jones co-founded and is chairman of JUST Capital Foundation, which seeks to help companies better serve all of their stakeholders, including workers, customers, communities, and the environment. Jones said companies and markets can be a greater force for good by shifting more resources from the private sector to address systemic issues including income inequality and lack of opportunity.
Corporations currently give an average of 1 percent of their profits to philanthropy, which Jones said works out to about $25 billion. Jones would like to see that percentage come up to 2 or even 3 percent.
“If we are going to fight poverty, it really has to involve the corporate sector … (and) how businesses conduct themselves,” he said.
Jones’s appearance marked the second of three Signature Series engagements for this season. U.S. Senator Jack Reed, chairman of the Senate Armed Services Committee, offered a “View from Washington” on Jan. 19.
David Rockefeller, Jr., a business executive, philanthropist, and environmentalist, will headline the third gathering on Feb. 27 at noon at The Beach Club. A lifelong sailor who works to promote conservation of the world’s oceans, Rockefeller will focus his remarks on “Ocean Health and Planetary Health.”
The Signature Series is sponsored by the Stanley M. Rumbough, Jr. Legacy Society through a gift from the late Cynthia Van Buren. The Rumbough Society is named for the late businessman, philanthropist and former co-chairman and CEO of the Civic Association.
Signature Series engagements are open to Civic Association members at the giving level of $1,000 and above. To RSVP, call 561-655-0820 or visit palmbeachcivic.org/events.
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